Generally speaking, the emergence of a small group of very large global operators with substantial capital and highly diversified portfolios strengthens the financial system; the emergence of such a group nonetheless faces the international community with the problem of forestalling the possibility of an insolvency and defining instruments on an adequate scale for handling such an event.
We should make it clear to the public that normalization of monetary policy will mean a return to the federal funds rate as our primary policy instrument and that means a much smaller balance sheet, dominated by Treasury securities. Policymakers should also develop and articulate a coherent and credible plan for normalization.