Milan issues "Balance Sheet Reduction Guide": CITIC Securities says it has certain practical feasibility but some options are overly idealistic

Golden Ten Data reported on April 20 that, according to a research report from CITIC Securities, Federal Reserve Governor Milan and three other economists recently jointly published a working paper titled "A User’s Guide to Reducing the Federal Reserve’s Balance Sheet." The structure of this paper is similar to the previously popular "A User’s Guide to Restructuring the Global Trading System." This paper challenges the conventional view that it is difficult for the Federal Reserve to make significant reductions in its balance sheet, arguing that reserve demand is largely determined by the regulatory environment. It suggests that by adjusting the regulatory framework, curbing precautionary motives, and addressing other sources of reserve demand, it is possible to reduce the balance sheet without causing unexpected market pressures. Monte Carlo simulations estimate the potential space for reduction ranges from $1.2 trillion to $2.1 trillion. We believe the "balance sheet reduction guide" is practically feasible to some extent, though some options may be somewhat idealistic.