Powell says the Federal Reserve will expand its balance sheet ‘soon’

  • Federal Reserve Chairman Jay Powell said Tuesday the central bank would increase purchases of government-backed securities over time.
  • Speaking before the National Association for Business Economics in Denver, Powell said the plan to grow the balance sheet would be announced “soon.”
  • The move followed weeks of volatility in money markets, which sparked discussion of the amount of reserves in the financial system.
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Federal Reserve Chairman Jay Powell said Tuesday the central bank would increase purchases of government-backed securities over time, a move that followed weeks of volatility in money markets.

Speaking before the National Association for Business Economics in Denver, Powell said the plan to grow the so-called balance sheet would be announced “soon.” The Fed ended efforts to shrink its portfolio of short-term Treasury securities in August.

A shortage in the amount of cash banks had on hand for short-term funding needs last month highlighted concerns about the amount of reserves in the financial system. For the first time since the financial crisis a decade ago, the New York Fed has had to repeatedly jump into financial markets in recent weeks to keep interest rates in the intended range.

“That time is now upon us,” Powell said of the plan to expand the balance sheet, stressing that it should be seen as a technical measure and not an effort to stimulate the economy. Through an unconventional policy known as quantitative easing, the Fed more than quintupled the assets on its balance sheet to $4.5 trillion between 2008 and 2015.

Also on Tuesday, Powell left the door open to the possibility that policymakers would lower borrowing costs at the end of the month.

But he didn’t commit to such a move, adding that cuts in July and September had supported the outlook for the economy. The policy-setting Federal Open Market Committee lowered its benchmark interest rate to a target range of between 1.75% and 2% last month.

“We will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis,” he said. “Taking all that into account, we will act as appropriate. Looking ahead, policy is not on a preset course.”

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