Investing.com -- Federal Reserve Board Governor Christopher J. Waller expressed his support for no change in the federal funds target range during the most recent Federal Open Market Committee (FOMC) meeting. Waller also voiced his preference to maintain the current pace of decline in securities holdings.

According to Waller, reducing the Federal Reserve’s balance sheet is a crucial step toward normalizing monetary policy implementation and reducing unnecessary reserves in the banking system. He stated that slowing further or stopping the redemption of securities holdings would be appropriate as the banking system approaches a sufficient level of reserves. However, Waller emphasized that this point has not yet been reached, as reserve balances currently exceed $3 trillion.

Waller highlighted that there is no evidence from money market indicators or his outreach conversations suggesting that the banking system is nearing a sufficient level of reserves. The Committee slowed the pace of redemptions in June 2024 to facilitate a smooth transition to the appropriate level of securities holdings needed to efficiently and effectively implement monetary policy. Waller affirmed his belief that this pace remains suitable.

In the event of unanticipated disturbances to reserve demand during the process of balance sheet normalization, Waller stated that the Federal Reserve System has a variety of tools to address such developments. He suggested that, instead of altering the current pace of balance sheet reduction, the Federal Reserve should rely on these tools and develop a contingency plan for responding to short-term strains.

Waller also stated that a plan is still necessary, even with the decision to slow the pace of runoff at the meeting, in case a disturbance occurs in the future. He stressed that good process leads to good outcomes and that effective contingency planning helps avoid disruptions to markets and the FOMC’s efforts to achieve economic objectives.

On Wednesday, the Federal Reserve decided to keep interest rates steady. However, U.S. central bank policymakers indicated they still anticipate reducing borrowing costs by half a percentage point by the end of this year due to slowing economic growth and a potential downturn in inflation.

Federal Reserve officials marked up their outlook for inflation this year, expecting their preferred measure of price increases to end the year at 2.7%, compared to the 2.5% pace anticipated in December. The Fed targets inflation at 2%.

The Federal Open Market Committee also marked down the outlook for economic growth for this year from 2.1% to 1.7%, expecting slightly higher unemployment by the end of this year. The Fed also announced plans to slow the ongoing drawdown of its balance sheet, known as quantitative tightening, starting next month.

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