By Nick Timiraos

The Federal Reserve could soon start expanding its asset portfolio again, New York Fed President John Williams hinted in a speech Friday.

Fed officials voted last week to stop shrinking their $6.6 trillion asset portfolio from the start of December. That move is meant to stop too much electronic cash, known as bank reserves, from draining out of the financial system.

Expanding the asset portfolio would offset growth in other Fed liabilities, such as currency in circulation, which further drains reserves.

Allowing the Fed balance sheet to grow again isn't meant to represent any change in underlying interest-rate policy. Instead, it aims to ensure the Fed's policy choices are efficiently transmitted to financial markets.

Recent firming in overnight lending rates suggests "it will not be long" before the Fed reaches its desired level of bank reserves, Williams said.

Allowing reserves to fall below that level could stoke more volatility in overnight lending markets. That could force the Fed to more dramatically intervene in markets-something it did in 2019 and which officials want to avoid.

Williams' remarks carry weight because the New York Fed serves as the central bank's eyes and ears on Wall Street and is tasked with carrying out Fed policy.

Fed officials have said they will continue to run down holdings of mortgage-backed securities. The Fed will buy Treasurys to maintain a sufficient quantity of reserves.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

November 07, 2025 08:27 ET (13:27 GMT)

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