stanley fischer : conducting monetary policy with a large balance sheet speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at the 2015 us monetary policy forum, sponsored by the university of chicago booth school of business, new york city, 27 february 2015. * * * accompanying charts can be found at the end of the speech. thank you. it is a great pleasure to be here to discuss some of the important issues facing the federal reserve and other central banks in conducting monetary policy with a large balance sheet. i will focus on two main sets of issues that the fed has faced and will continue to face for some time. the first involves our ongoing assessment of the effects of the asset purchases. the second concerns policy normalization in the presence of a very large balance sheet. to set the stage, consider the size of the fed ’ s balance sheet over the past several years. assets have risen from about $ 900 billion in 2006 to about $ 4. 5 trillion today, or – as seen in figure 1 – from 6 percent of nominal gross domestic product ( gdp ) to about 26 percent of nominal gdp. the net expansion over this period reflects primarily our large - scale asset purchase programs. of course, many other central banks have expanded their balance sheets substantially over recent years as well. for example, assets of the bank of japan have increased from about 20 percent of nominal gdp to more than 60 percent of nominal gdp over this period, and assets of the swiss national bank have increased from 20 percent of nominal gdp to more than 80 percent of nominal gdp. the net increase in assets of the european central bank has so far been more modest, with assets increasing from less than 10 percent of nominal gdp to more than 20 percent of nominal gdp – but their quantitative easing ( qe ) program is not yet under way. for the remainder of my remarks, i will focus on the fed, beginning with some remarks about the asset purchase programs. the federal reserve asset purchase programs the nature of our purchase programs has changed over time. in the early programs – that is to say, qe1, qe2, and the program we call the mep, or the maturity extension program, otherwise known as “ operation twist ” – the federal open market committee ( fomc ) specified the expected quantities of assets to be acquired over a defined period. early in the crisis, this strategy seemed to help bolster confidence that the fed was acting aggressively to offset the tightening in credit

testing to date suggests that on rrp operations have generally been successful in establishing a soft floor for money market interest rates. 6 the fed could also employ other tools, such as term deposits issued through the term deposit facility and term rrps, to help drain reserves and put additional upward pressure on short - term interest rates. we have been testing these tools and believe they would help support money market rates, if needed. finally, with regard to balance sheet normalization, the fomc has indicated that it does not anticipate sales of agency mortgage - backed securities, and that it plans to normalize the size of the balance sheet primarily by ceasing reinvestment of principal payments on its existing securities holdings when the time comes. as illustrated in figure 4, cumulative repayments of principal on our existing securities holdings from now through the end of 2025 are projected to be about $ 3. 2 trillion. as a result, when the fomc chooses to cease reinvestments, the size of the balance sheet will naturally decline, with a corresponding reduction in reserve balances. see board of governors of the federal reserve system ( 2014 ), “ federal reserve issues statement on policy normalization principles and plans, ” press release, september 17. policymakers have discussed benefits and costs of an on rrp facility. for further discussion on this topic, see, for example, the fomc minutes for june 2014, july 2014, and january 2015 available on the board ’ s webpage “ federal open market committee : meeting calendars, statements, and minutes ( 2009 – 2015 ) “ ; and josh frost, lorie logan, antoine martin, patrick mccabe, fabio natalucci, and julie remache ( 2015 ), “ overnight rrp operations as a monetary policy tool : some design considerations ( pdf ), ” finance and economics discussion series 2015 – 010 ( washington : board of governors of the federal reserve system, february ). bis central bankers ’ speeches conclusion i will close by highlighting that the fed ’ s asset purchases have been a critical means by which the fomc has provided policy accommodation at the zero lower bound on nominal interest rates. in other words, the fed – and other central banks – can implement an expansionary monetary policy even when the policy interest rate is at the zero lower bound. the current high level of securities holdings will present some challenges for policy normalization, but we are confident that we have the tools necessary to remove accommodation at the appropriate