Stephen Miran on balance sheet runoff

At the Economic Club of Miami's event on March 26, 2026, Federal Reserve Board Governor Stephen I. Miran joined founding chairman Jon Hartley for a wide-ranging discussion on the future of monetary policy, the Federal Reserve’s balance sheet, and the evolving economic landscape. Governor Miran outlined why reducing the Fed’s balance sheet—currently in the trillions—is both desirable and achievable. He explained the shift from “scarce” to “ample” and “abundant” reserves since the 2008 financial crisis, and argued that a smaller balance sheet could reduce market distortions, limit risks, and better separate monetary and fiscal policy. Importantly, he emphasized that balance sheet reduction does not necessarily require returning to a scarce reserves system and could potentially be achieved through targeted regulatory and operational changes. The conversation also explored key macroeconomic themes, including inflation, labor market trends, and the neutral rate of interest (R-star). Miran noted that inflation is gradually moving toward the Fed’s target, while oil shocks—such as geopolitical tensions—are likely to have only short-term effects that central banks typically “look through.” He also highlighted a slowly cooling labor market and suggested that current monetary policy may still be modestly restrictive. A major focus of the discussion was the role of technological and regulatory shifts. Miran pointed to generative AI and deregulation as powerful “positive supply shocks” that could boost productivity, lower inflation pressures, and raise the neutral rate of interest over time. Throughout the conversation, Miran emphasized that any effort to shrink the Fed’s balance sheet must be gradual, carefully communicated, and supported by market structure reforms to avoid disruptions such as a repeat of the “taper tantrum.” The discussion offers a timely and insightful look into the challenges and opportunities shaping U.S. monetary policy today. Learn more about the Economic Club of Miami at: https://www.econclubmiami.org 00:00 – Welcome & introduction to the Economic Club of Miami 05:25 – Miran opens: What is the Fed’s balance sheet and why it matters 06:33 – Scarce vs. ample vs. abundant reserves explained 07:27 – Why shrinking the balance sheet is beneficial 08:34 – Is balance sheet reduction actually possible? 09:13 – Can the Fed shrink without returning to scarce reserves? 10:39 – Policy tools to reduce reserve demand 12:29 – How much could the balance sheet shrink? (Key estimates) 13:57 – Importance of moving slowly to avoid market disruption 14:34 – How balance sheet policy impacts the economy 16:12 – Timeline: Why this process could take years 17:21 – Conversation begins with Jon Hartley 18:20 – Current size of the Fed balance sheet & future outlook 19:41 – Potential $1–2 trillion reduction explained 21:20 – Ample vs. scarce reserves: Miran’s “weak lean” 23:37 – Risks of a “taper tantrum 2.0” 25:02 – Regulatory reforms to support balance sheet reduction 27:03 – Inflation outlook and impact of oil shocks 29:45 – Labor market trends and monetary policy stance 31:10 – Is policy currently restrictive? Understanding R-star 34:45 – Generative AI and its impact on the economy 36:50 – AI and deregulation as “positive supply shocks” 39:05 – How AI affects the neutral rate of interest 40:30 – Fiscal policy, deficits, and economic outlook 43:24 – Closing thoughts and reflections