Mr. Powell.Are you going to spend some money now? Really?

Mr. Powell.
Are you going to spend some money now? Really?

~ Jerome Powell, chairman of the U.S. Federal Reserve (Fed), said on the 14th (local time) that the quantitative tightening (reducing the balance sheet) that reduces the Fed’s holdings could end in the coming months. He declined to elaborate on whether to cut the benchmark interest rate in the future.

Powell said in a speech at the National Society of Real Economics (NABE) annual meeting in Philadelphia, Pennsylvania, that he has long said he will stop shrinking the balance sheet if the Fed reserve reaches a higher level than sufficient conditions.

Quantitative tightening, called balance sheet reduction, is a measure to reduce liquidity in the market by not reinvesting or selling government bonds and mortgage securities (MBS) worth more than 6 trillion dollars that the Fed holds after maturity. It is the opposite concept of quantitative easing, in which the Fed supplies currency to the market by buying bonds.

During the COVID-19 pandemic in 2020, the Fed released money on the market by purchasing government bonds and mortgage securities on a large scale. At that time, assets on the Fed’s balance sheet increased from $4 trillion to $9 trillion. Since mid-2022, the Fed has adjusted market liquidity by not reinvesting government bonds after maturity.

Chairman Powell said, “The excessive reduction in reserves could dampen the liquidity of funds in the financial market,” adding, “We will maintain a gradual and cautious approach.” He also added, “There are no plans to return the size of assets (such as government bonds held by the Fed) to the level of $4 trillion before the COVID-19 crisis.”

Regarding the possibility of a further rate cut within this year, Powell refrained from directly commenting, saying, “The economic and inflation outlook has not changed significantly even after lowering the benchmark interest rate by 0.25 percentage points last month.”

In the market, interest rates are widely expected to be further cut at the Federal Open Market Committee (FOMC) meeting to be held from the 28th to the 29th.