The Balance Sheet and the Future of Fed Policy

The size of the Fed's balance sheet has almost quadrupled since 2007, and the composition of the balance sheet has changed in important ways, with regard to both assets and liabilities. This short paper asseses the implications for how monetary policy works, and the entailed risks. The size of the balance sheet and its composition may not matter economically, but there are significant political risks. The political risk-taking may make monetary policy choices more difficult than they would otherwise be.