Almost all of the focus on the Federal Reserve lately has been concentrated on the future path for the fed funds target rate. After the false start in December of 2015, the FOMC hiked rates again in December of last year and now stands poised to actually turn things into a steady campaign of rate hikes. However, the other piece of their emergency level of monetary policy accommodation – the balance sheet – has been largely ignored.

The balance sheet grew to $4.5 trillion in the wake of the financial crisis. A sum that is mind boggling on its own. But in addition to gobbling more interest bearing securities than ever before, the kinds of bonds purchased through open market operations changed when the Fed began to buy longer-term Treasury and Agency bonds as well as Agency MBS in an effort to influence the cost of longer-term borrowing.

So if the economy has improved enough for the FOMC to let off the fed funds gas pedal a little bit, why isn’t the same thing happening to the bond portfolio? The answer is unclear, but as with most things monetary policy, there are no shortage of opinions.

Let’s start with Ben Bernanke, the man who built the bond portfolio into what it is today. In his latest Brookings Institution Blog post titled, Shrinking the Fed’s Balance Sheet, the former FOMC Chair voiced his opinion – sort of. I’m an avid reader of his work on this blog and it always seems to me that he has so much more to say than he actually puts out there. He seems terrified of influencing the current committee. I guess that makes some sense because Fed independence is sacred, and he should be taking that seriously, but I still wish he would go a bit farther in putting his views out there.

Nonetheless, his view is that nothing needs to be done right now. He seems to agree with the recent FOMC meeting statements that they will concentrate on getting the target for fed funds well above zero before considering an adjustment to their current strategy of maintaining the size of the portfolio by reinvesting all cash flow. He stresses that whenever there comes a time when an adjustment is needed, the committee should keep it simple, slow and transparent.

On the other side of the argument is St. Louis’ own Fed President James Bullard, who in recent comments pushed for the beginning of the unwind of the Fed’s bond portfolio. I don’t always agree with Bullard’s views, but in this case I do. His view is that a policy that puts upward pressure on short-term rates while still pushing longer-term interest rates down can distort incentives in the economy and a “twist operation” doesn’t have a real theoretical basis. FOMC meeting minutes, that are more in-depth than the statement and are released with a 3-week lag, have noted concerns from the group about those distortions in the yield curve incentivizing more leverage and risk-taking than normal conditions would.

Yet another view, also laid out by Bernanke in his blog post is that the Fed may never have to do anything about the bond portfolio. He uses a lot of very complicated theoretical economics jargon to basically say that we can grow our way into it over time. In very not complicated language… I imagine this being somewhat like me putting a pair of my pants on my two-year old and saying, “don’t worry Son, you’ll grow into them”. As much as I would like a “one size fits forever” policy to work for my kid’s shorts, it isn’t prudent. And as a quick study in monetary policy will show you, doing nothing can be dangerous.

As for now there is no expectation for the bond portfolio to take priority over target rate hikes any time soon. The period of time before there is any change to open market operations is probably measured in years and as of now we are expected to get a rate hike every few months for the foreseeable future. Just over the last few days the probability for a rate hike at the March meeting has gone from 30% to 80%. In the meantime, let’s all make sure our pants fit.