US Federal Reserve does not need to shrink its US$4T-plus balance sheet in order to normalize monetary policy when time comes, because Fed has worked 'very carefully' to raise rates at the appropriate time, says former Fed Chair Bernanke

Cindy Allen

DALLAS , May 20, 2014 (Thomson Reuters Corp.) – The Federal Reserve does not need to shrink its $4 trillion-plus balance sheet by even "a dime" for it to normalize monetary policy when the time comes, former Fed Chair Ben Bernanke said on Monday.

"The Fed has worked very carefully to figure out how to raise rates at the appropriate time," Bernanke told a monetary policy conference. "That will eventually happen - we hope it happens because that means the economy is going back to normal."

When the Fed does tighten, he said, "you can have some bumpiness" as markets potentially react to the changes. But in all, he said, "it will be a fairly normal process."

The Fed under Bernanke bought trillions of dollars of long-term securities to help boost the U.S. economy and keep deflation from taking hold.

As the Fed exits from those extraordinary policies, Bernanke said, "There is absolutely no need or requirement for the balance sheet to go back to normal as monetary policy normalizes. The balance sheet could be kept where it is for a very long time if necessary."

(Reporting by Ann Saphir; Editing by Chris Reese)

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