U.S. Federal Reserve governor Lael Brainard said on Thursday that the central bank should end the runoff of its balance sheet later this year.
"For me it seems that the balance sheet normalization process has -- has really done the work it was supposed to do," Brainard said in an interview with CNBC.
"My own view is that balance sheet normalization process should probably come to an end later this year," she said, suggesting the Fed could maintain a much larger balance sheet than they had before the 2008 financial crisis.
"We know that liquidity demand on the part of financial institutions is much higher than it was pre-crisis, so we want to make sure that there's an ample supply of reserves to guard against volatility," she argued.
The Fed began shrinking its assets portfolio in October 2017 by allowing its mortgage-backed securities and treasuries to mature without reinvesting the proceeds.
The central bank has trimmed its balance sheet from 4.5 trillion U.S. dollars at its peak time to the current 4 trillion dollars. Its reserves have also declined to around 1.6 trillion dollars from a peak of 2.8 trillion dollars.
"It's important to remember we've already seen a very large amount of normalization taking place. Reserves are down 40 percent from their peak. They will be down more than 50 percent later in the year," Brainard said.
The Fed governor also said she backed the central bank's "patient" approach regarding further interest rate hikes as downside risks for the U.S. economy "have definitely increased."
"Back in December, I had already noted that crosscurrents were increasing and that tailwinds were dying down, and I think that is even more true today because of those downside risks that are gathering," she said.
"I think we're in a good place today. I'm comfortable waiting and learning. We want to see the data as it comes in," she added.
The Fed kept interest rates unchanged and pledged to be patient about future rate hikes after its January policy meeting. The central bank also said it was "prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments."
At a press conference following the Fed's meeting last month, Fed Chairman Jerome Powell said the central bank was "evaluating the appropriate timing" for the end of balance sheet runoff and would be finalizing these plans at coming meetings.
