In their individual remarks, participants agreed broadly that the balance sheet should be reduced beginning later this year. Harker preferred waiting for two more rate hikes before initiating reduction, although he was open to starting reduction after only one additional hike. As for the ultimate target configuration of the balance sheet, Williams noted it would be “much smaller” but noted the desirability of maintaining a higher level of reserves: “In the future it’d be probably easier to conduct monetary policy, maybe better if we had several hundred billions of dollars in reserves. But it’s not a question of, are we going to reduce the balance sheet significantly. It’s really at the end, [the] balance sheet going to have something like $2 trillion or 2½ trillion or something like that.” Kaplan’s estimate was similar: “If somebody says in the [$2-trillion ballpark], that sounds about right to me.”
Participants generally agreed that there should be three rate hikes this year, although there was some debate about the balance of risks. Williams sounded a hawkish warning that “Movement below the natural rate of unemployment carries with it the risk of the economy overheating, which could undermine the sustainability of the expansion.” On a separate occasion, he revealed that he assumed a “modest fiscal stimulus of some kind” although he was skeptical of the Administration’s ability to deliver 3% growth, noting that “I don’t think that happens because you change certain tax rates, or certain policies…I don’t see [improvement in productivity growth] as at all likely.” On the more dovish side, Kaplan cited tepid output growth as a risk: “Two things drive GDP: growth in the labor force and growth in productivity…The problem is labor force growth is very sluggish. And my own judgment and our economists at the Dallas Fed think it’s going to continue to be sluggish the next 10 years because the population is aging and labor force growth therefore is slowing.” Brainard, who does not comment as regularly as presidents do, noted policymakers are still trying to make sense of a strong labor market with muted inflation, and suggested that she is unsure the dual-mandate objectives have been met: “Is the Phillips Curve simply no longer operative or is there more slack there…for me I think there is still a question mark around ‘are we there yet?’” Evans admonished “conservative central bankers” for not treating the inflation objective “as a level we fluctuate symmetrically around…Rather it would become an inflation ceiling,” pointing to persistent undershooting of inflation in recent years threatening inflation expectations. He called for “demonstrating a strong commitment to our objectives by trying harder to hit our symmetric inflation objective sooner rather than later.”