8 “The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably  below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances and the Committee’s decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.” See the Addendum to the Policy Normalization Principles and Plans, June 13, 2017. Minutes to the FOMC’s November 2016 meeting summarize the FOMC’s discussion of its long-run framework and its implications for the long-run balance sheet size. 9 Logan, Implementing Monetary Policy: Perspective from the Open Market Trading Desk, May 18, 2017. 10 See Leonard, Martin and Potter, How the Fed Changes the Size of Its Balance Sheet, July 10, 2017, for detail on  how these transactions work in practice. 11 Interest is not reinvested. Instead, the Federal Reserve’s net income is remitted to the Treasury. 12 This is done by placing noncompetitive add on bids at Treasury auctions and by buying agency MBS on the open  market.
As shown in Panel 10, market participants assign about one chance in four to such a scenario unfolding, so communications about how the FOMC might respond to such an outcome in the future might have the effect of bolstering confidence even today. 12 / 15  BIS central bankers' speeches  Returning to Panel 9, it is notable how much uncertainty there is about the size of the balance sheet, even in the no-zero-lower-bound scenario shown on the left. This likely reflects a few factors: MBS repayments remain uncertain up to the cap; future demand for currency, bank reserves, and non-reserve liabilities is hard to know precisely; and the FOMC has not yet decided on a longer-run framework for the implementation of policy. As a result, it seems appropriate to me that there should be an appreciable amount of uncertainty, which should decline over time as these matters become clearer so long as normalization continues uninterrupted. Conclusion Let me conclude now by reiterating the message of confidence with which I began my remarks. I am confident that the FOMC’s gradual and predictable plan to normalize the balance sheet will reduce the balance sheet’s size at an appropriate pace, that it will promote good market functioning, that it will not disrupt the mortgage market or Treasury debt issuance, and, importantly, that it will mitigate the risk of sharp or outsized asset price reactions.