Hamaq said: The Federal Reserve should continue to shrink its balance sheet, and monetary policy should remain stable.

Cleveland Fed President Loretta Mester said on Wednesday that the current situation still supports the Federal Reserve continuing to shrink its balance sheet. She also stated that now is not the time to change monetary policy amidst significant uncertainty. Mester said, "Now is not the time to be preemptive in monetary policy," adding that it is time to be patient and see how the data unfolds before taking action on interest rates. Mester outlined her views on the Federal Reserve balance sheet at a conference for monetary market experts at New York University. "We seem to have enough reserves in our system, so there is no need for active management," Mester said. Mester emphasized that the large size of the Fed's balance sheet poses risks to financial stability. The process of reducing the Fed's holdings is widely known as quantitative tightening. She stated, "A large balance sheet and ample reserves have to some extent dampened volatility in money markets, but they have also encouraged risk-taking in financial markets." Mester mentioned that over time, it is reasonable for the Fed to take temporary measures to manage short-term volatility in the markets. "In certain circumstances, the Fed may need to increase temporary liquidity. In such cases, even with ample reserves, the Fed can use standard open market operations tools to maintain the federal funds target range," she said. Last month, the Fed decided to significantly slow down the pace of reducing its holding of U.S. Treasuries and mortgage-backed securities. The Fed has slowed its reduction twice to ensure a gradual withdrawal of liquidity. Mester supported the slowdown in reducing the balance sheet. Despite sufficient reserves in the system to support this, she said, "I expect that by slowing the balance sheet reduction, we will be able to prolong this process." Through quantitative tightening, the Fed has been withdrawing the funds it increased during the COVID-19 pandemic. The bond purchase program aimed at stabilizing the market and providing stimulus doubled the Fed's balance sheet to over $9 trillion. The reduction process has brought the balance sheet size down to $6.8 trillion. Amid market turmoil caused by President Donald Trump's volatile trade policies, the Fed's balance sheet has once again become a focal point. The market pressure is so intense that some are considering whether the Fed would need to step in to stabilize the markets by purchasing bonds if trading gets chaotic. Mester noted that the market appears to remain orderly amidst high volatility, with investors able to reallocate funds. She echoed recent remarks by Fed Chair Jerome Powell, saying, "I think the Fed needs to set a very high bar to intervene. We need to be prepared to step in to support the market when that time comes."