Quantitative Tightening Uncertainty: Powell Says Fed Has "Quite a Ways to Go" with Balancing Sheet Reduction
During his testimony before the House Financial Services Committee, Federal Reserve Chair Jerome Powell revealed that the Fed still has a significant amount of work to do in reducing the size of its balance sheet. Despite already trimming $1.7 trillion, Powell emphasized the need for a cautious approach to ensure that financial institutions have ample reserves.
The Fed initially expanded its balance sheet in response to the COVID-19 pandemic to lower long-term interest rates and support the economy. Currently, the Fed is allowing up to $25 billion per month of U.S. Treasuries and $35 billion of mortgage-backed securities to expire as they mature.
In his testimony, Powell addressed various regulatory proposals and concerns raised by lawmakers. He defended the Fed's dual mandate of maintaining stable prices and full employment, stating that it has been beneficial and has not hindered the Fed's ability to address inflationary pressures.
Looking ahead, Powell acknowledged the recent uptick in the U.S. unemployment rate, which stands at 4.1% and has been gradually increasing. He indicated that further positive economic data could support a case for the Fed to consider interest rate cuts.
Overall, Powell's remarks underscore the Fed's ongoing efforts to navigate the uncertain economic landscape and maintain a balanced approach to monetary policy.