The time for a change in balance sheet policy is coming into clearer view as normalization of the federal funds rate approaches the range that can be considered “well under way.” If the outlook and the expected federal funds rate path evolve in line with the median projection of FOMC participants reported in the March SEP, the federal funds rate will soon approach midway to its expected long-run equilibrium value.
The immediate need is to keep ample liquidity, strengthen banks’ balance sheets by adding capital and to help confidence, including by lending the strength of the sovereign’s credit rating where necessary. All this has been occurring.