Yesterday, Senator Rick Scott sent a letter to Federal Reserve Chair Jay Powell, urging him not to stop the reduction of the Federal Reserve’s balance sheet. This comes ahead of the upcoming Federal Open Market Committee meeting.
In his letter, Senator Scott expressed concern about the potential end of quantitative tightening by the Fed. He noted that when Powell became chair in 2019, the balance sheet was $3.8 trillion and has since increased to nearly $9 trillion before being reduced to its current level of $6.6 trillion. Scott criticized what he called a failure to meet self-established targets for reducing the balance sheet.
He wrote: “Earlier this month, on October 14, you indicated that the Federal Reserve (Fed) may stop the reduction of its balance sheet, known as quantitative tightening (QT) soon. This is deeply concerning, and I urge you to reconsider.”
Scott attributed recent high inflation rates to actions taken by the Fed during Powell’s tenure. He stated: “The Federal Reserve’s reckless and unprecedented securities buying spree, coupled with the Fed’s slow and insufficient pace of balance sheet run-off, has resulted in the highest inflation in four decades, making it harder for American families to put roofs over their heads and food on their tables. If the Federal Reserve ends quantitative tightening efforts now, the American people will continue to suffer from your failures.”
Senator Scott also raised concerns about financial losses at the central bank and criticized programs such as Interest on Reserve Balances. He said: “For example, the Fed is currently operating with over $243 billion in losses, with taxpayers on the hook, but this could be significantly reduced by ending the Fed’s Interest on Reserve Balances program, which pays interest to banks on reserves and wasted $186 billion in 2024 alone.”
He concluded his letter by calling for continued efforts to reduce the balance sheet: “As your tenure as Fed chair ends, I simply ask that you do not add to your growing list of failures by ending efforts to pay down the balance sheet. This will prolong the American people’s suffering and make it harder for your successor as chair to fix the Federal Reserve and restore Americans’ trust in the central bank.”
