Federal Reserve Governor Lael Brainard: Reducing reserve requirements is the best path for the Federal Reserve to shrink its balance sheet.

Federal Reserve Governor Lael Brainard said that the Fed has two main paths to reduce its balance sheet, a policy goal advocated by Federal Reserve Chair nominee Kevin Warsh in the past. In a speech, Brainard stated that the Fed could first unilaterally allow its asset size to shrink, which would reduce bank reserves and could in turn put upward pressure on wholesale rates. On the other hand, the Fed could modify bank supervision regulations and take other measures to reduce the amount of reserves banks think they need. She concluded that the latter approach is more reasonable and less risky. Brainard's views on this issue align with recent statements from other Fed officials, including governors Stephen Miller and Christopher Waller.