Federal Reserve Bank of Atlanta President Dennis Lockhart said he sees a “legitimate concern” in the central bank’s ballooning balance sheet as it pursues additional purchases of mortgage-backed bonds and Treasuries.
“Over a long period of time, you would have to be concerned” about having too large positions that would affect markets in those securities, Lockhart said. “That is a long-term prospect but not something to ignore.”
Lockhart said that as the Fed’s balance sheet grows, it also poses greater challenges for the central bank’s eventual withdrawal of stimulus.
“I’m very comfortable that when the time comes,” the exit “can be carried out in an orderly way,” Lockhart said. Still, “the bigger the balance sheet, the more the unknown factor.”