This is the approach  20  https://www.bankofengland.co.uk/-/media/boe/files/report/2019/response-to-the-future-of-finance-report.pdf 12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12  adopted by the US Federal Open Markets Committee (FOMC).21 The assets of the Federal Reserve have fallen by over $ since US QT began in autumn 2017 – and US reserves are now more than 40% below their 2014 peak (Chart 11).22  Chart 11: QE and QT in the United States  Source: FRED, Federal Reserve Bank of St Louis  We know from our own experience that this ample reserves floor system can be an effective way to deliver unconventional monetary policy whilst also maintaining control of interest rates. It is particularly suited to the US context, where the supply of reserves is subject to relatively large day-to-day variation as government deposits with the central bank and other items fluctuate. But a key implication of this approach is the need to maintain an estimate of when reserves will become scarce, in order to keep reserves supply well above that level. As we have seen, this estimate is intrinsically uncertain. The market impact of the early stages of US QT was extremely smooth, assisted by clear communications in advance about the way in which the Federal Reserve’s assets would run off progressively over time. But risky asset prices began moving more sharply in the later part of 2018 and into 2019, and there was persistent upward pressure on some short-term money market rates relative to official rates (Chart 12).

1  Kevin Warsh, quoted in the FT, 7.5.17: https://www.ft.com/content/45303028-3280-11e7-bce4-9023f8c0fd2e See for instance https://www.cato.org/blog/strange-official-economics-interest-excess-reserves 3 https://www.thetimes.co.uk/article/we-were-not-asleep-at-the-wheel-bank-of-england-managers-tell-angry-mps-6pc7bnr56lf 4 https://scholar.harvard.edu/stein/publications/federal-reserves-balance-sheet-financial-stability-tool 5 https://www.brookings.edu/blog/ben-bernanke/2016/09/02/should-the-fed-keep-its-balance-sheet-large/ 2  2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  Chart 2: The Bank of England’s balance sheet as a share of GDP  Source: Bank of England, available at: https://www.bankofengland.co.uk/statistics/research-datasets  Where is this all going? At one level the answer to that is simple: for the foreseeable future, the path of the Bank’s balance sheet will be shaped by the decisions of the Monetary Policy Committee (MPC) in pursuit of the inflation target given to it by Government. Whether that involves further expansion of the balance sheet, or a return to less exceptional levels (so-called Quantitative Tightening or ‘QT’), we on the Bank executive need to be ready to implement those decisions. My focus today is squarely on the latter: how we plan to implement monetary policy during QT, and the likely size of our balance sheet in the medium term. Of course, market expectations don’t point to QT starting any time soon. But those views can change rapidly. And experience from the United States and elsewhere suggests that early, clear communication about the target end-state can help stabilise expectations and increase the effectiveness of normalisation when it comes. For that reason, we launched a Discussion Paper6 last year to expose our vision of the medium-term goal to challenge and feedback. We promised to share our findings from that work7 – and that’s what I aim to do today.