Calling the "normalization of the federal funds rate ... well under way", Federal Reserve Board Governor Lael Brainard said it is nearly time for balance sheet run off.
Traders are looking ahead to Congressional testimony from Federal Reserve Chair Janet Yellen Wednesday.
"I consider normalization of the federal funds rate to be well under way", Brainard said at a conference in NY, according to prepared text released by the Fed.
Bottom line, voting members of the Fed continue to believe that running off the balance sheet is somewhat harmless and no big deal.
The remarks also suggest that Brainard would not support a further increase in interest rates until December as she would want to halt the process of rate hikes at the September meeting and leave rates on hold to assess developments on starting to shrink the balance sheet. Whether its QT or a rate hike, it still is another form of tightening and the Fed is thus ramping up its pace of policy change in the 9th year of the expansion and in the context of a bull market that is making a run at the longest ever.
On Tuesday, Brainard expressed concerns over the low inflation in recent months, and would take a cautious approach in weighing on interest rate hike. In my view, the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term.