Fed Will Reduce Balance Sheet Rapidly, Brainard Says

The committee plans to tighten monetary policy through interest rate hikes and rapid balance sheet reduction, given the stronger recovery compared to previous cycles. This approach aims to bring policy to a neutral stance, with market expectations already reflecting significant tightening. The impact is evident in longer maturity market conditions, affecting household and business decisions, as seen in rising mortgage rates.

What is the committee's approach to tightening monetary policy?

• Reducing interest rates and increasing the balance sheet

• Decreasing interest rates and maintaining the balance sheet size

• Maintaining current interest rates and balance sheet size

• Increasing interest rates and reducing the balance sheet

How does the committee expect the balance sheet to change compared to the previous recovery?

• Expand with larger caps

• Remain the same size

• Shrink more rapidly with larger caps

• Shrink more slowly with smaller caps

What is the expected outcome of the combined effect of rate increases and balance sheet reduction?

• A more neutral policy stance

• A more aggressive policy stance

• No change in policy stance

• A more lenient policy stance

What has been the market's response to the committee's communications?

• Expectations for no change in policy rate

• Expectations for a decrease in policy rate

• Expectations for a slow increase in policy rate

• Expectations for a rapid increase in policy rate

What trend is observed in the 30-year fixed mortgage rate?

• Remaining constant

• Decreasing to levels last seen in 2018

• Increasing to levels last seen in early 2018

• Fluctuating unpredictably