James BullardMR. BULLARD: I would say one other thing, though, that I’d be interested now in thinking about balance sheet policy and possibly allowing runoff in the balance sheet. That’s something that I’ve advocated in the past, and it seems to me now might be a good time to – or 2017, possibly, would be a good time to play that card. And then we could start working the balance sheet down. And if we don’t want to allow a runoff of the balance sheet, another thing you could do is reverse the Operation Twist that we did earlier and go at a shorter – you know, replace maturing securities with shorter-term securities. You could do that as well. But –[p|div|span]>
MR. DERBY: Would you do that – would you do that by way of the reinvestment process that’s still ongoing?
MR. BULLARD: Yeah. The reinvestment process is ongoing right now. You could redirect that more toward shorter-term securities, or my preference would be just to allow some runoff in the – in the balance sheet. So this is something that the committee was thinking about doing before we started raising interest rates, and then it got put to the back burner. But it seems to me that you could at least think about that in 2017, and that’s something I would – I would be interested in looking at.
MR. DERBY: Now, could you sort of sketch out how you – would this be in terms of, say, fading or tapering the reinvestment program, or stopping it? Would that be the first step along that path?
MR. BULLARD: Yeah, you could either – you could just stop reinvestments, or you could do it in a more managed way that would smooth it out a little bit more. And the path I’ve advocated, you know, thinking about a way to be smooth and allow the – you know, the reinvestment runoff to be managed in an appropriate way. And so we could – we could look at that. I don’t think this is imminent, but it’s something I’d be interested in. So I guess my point in mentioning this is that that does not show up in the interest-rate forecast, but that’s something I would be interested in doing.
MR. DERBY: Do you think the markets are ready for that? I know that would be kind of a real – for a lot of folks out there, that would be a real shot across the bow, and some folks would interpret that as a – as a real push towards tighter monetary policy.
MR. BULLARD: Well, I think you put less downward pressure on longer-term yields, you probably get a steeper yield curve. But in the context of what I’m advocating, which is only one rate increase over the forecast horizon, I think it would probably give you the appropriate amount of policy tightening. If you combined it with a very aggressive rate policy, that would be a lot tighter than what the markets are currently expecting. But – so, I guess, you have to take this in the context of what I’m saying for the policy rate, which is not very many moves in the policy rate, but possibly look at reducing the size of the balance sheet.