Federal Reserve Chair Janet Yellen has said she wants to shrinkthe central bank's $4.5 trillion balance sheet in an “orderly andpredictable way” that limits risks to the economy. The hurdles togetting that done are high.
The economic impact, the pace of the drawdown and its ultimateend point are all partly subject to forces beyond the Fed'scontrol. That could mean that the financial markets and the economymay be in for more tumultuous times than Yellen and her colleaguesare hoping for.
“We don't really know how it's going to go,” said RichardClarida, global strategic adviser for Pacific Investment ManagementCo., which oversees $1.5 trillion in assets. “There's not all thatmuch precedent” for the position that the Fed finds itself in.
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