Federal Reserve officials speaking at a conference in Mexico City said the U.S. central bank still has room to shrink its US$8.0-trillion balance sheet and that structural forces continue to anchor interest rates at historically low levels. Neither Dallas Fed President Lorie Logan nor New York Fed President John Williams offered guidance on the near-term policy outlook, but their remarks underscored issues that will shape deliberations ahead of the Federal Open Market Committee’s September meeting. Logan, who oversees the Fed’s key market-operations desk, said repo markets have recently traded about eight basis points below the rate the Fed pays on bank reserves, a sign that liquidity remains ample. With aggregate reserves around US$3.3 trillion—well above the roughly US$2.7 trillion “ample reserve” floor estimated by Governor Christopher Waller—she argued the Fed can continue to let assets roll off, provided quarter-end strains are met with standing liquidity facilities. Meeting banks’ short-term reserve demand, she warned, risks locking the Fed into an “endlessly expanding” balance sheet. She also urged the Fed to improve its communications, including reassessing whether a target-range approach for the federal-funds rate remains optimal and avoiding overemphasis on the median projection in its economic forecasts. Williams, whose district implements monetary policy, said recent data show no meaningful rise in the neutral interest rate, or R-star, which he put near 0.5% in real terms—similar to pre-pandemic readings. Demographics and productivity trends that kept rates low before COVID-19 “appear far from over,” he said, adding that policymakers should be cautious about relying on precise estimates of R-star given measurement uncertainty. The comments suggest that, while officials view the current policy stance as separate from long-run structural issues, they see room both to continue reducing excess liquidity in the financial system and to prepare for a world in which underlying neutral rates stay subdued. The balance-sheet runoff plan and the Fed’s communications framework are likely to feature prominently in coming policy debates.