PALO ALTO, Calif., June 24 The Federal Reserve
has the tools allow it to tighten monetary policy even with a
large balance sheet, a top Fed official said on Tuesday.
"Whether our balance sheet is declining or staying very
large doesn't affect in any way the Fed's ability to do what the
Fed has to do whenever the economy is in danger of overheating,
and that is to take the punch bowl away right when the party is
getting too fun," San Francisco Fed President John Williams said
at the 20th Annual Stanford Directors' College. When the time
comes to raise rates, he added, the Fed will try to do "in a way
that's the least disruptive as possible."
The Fed's balance sheet has ballooned to more than $4
trillion, and some critics worry those funds could become tinder
for future inflation as the economy heats up. The Fed's ability
to pay interest on the excess reserves banks keep at the Fed
will prevent such a situation, Williams said.
Signs point to inflation rising from current low levels but
still remaining "well within the range of what the Fed is
looking for," Williams added.
(Reporting by Ann Saphir; Editing by Eric Walsh)