WARSH: FED'S BALANCE SHEET HAS PLAYED UNHELPFUL ROLE ON ACHIEVING DUAL MANDATE || PREFER USING INTEREST RATES AS DOMINANT FORCE

Federal Reserve Governor Christopher Waller (WARSH) stated that the central bank's large balance sheet has hindered progress toward its dual mandate of price stability and maximum employment, suggesting it distorted market pricing and transmission of monetary policy. He emphasized a preference for using interest rates as the primary tool for policy adjustment, arguing that rate changes are more transparent and effective than balance sheet operations. This reinforces the market expectation that the Fed will continue relying on hawkish forward guidance and rate decisions—rather than asset holdings—to manage inflation and labor market dynamics. The comments add to the growing consensus among policymakers that quantitative tightening should be minimized in future frameworks, keeping focus on the federal funds rate as the dominant transmission channel. Traders will watch the next FOMC minutes and Waller’s upcoming speech at the Chicago Fed conference for further clarity on balance sheet normalization plans.

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