Firm stand: A trader works on the floor of the New York Stock Exchange as Powell speaks during a televised news conference in New York City. The central bank chairman says that selling bonds, rather than allowing them to mature and not be replaced, is not something officials are considering. — Reuters
NEW YORK: Federal Reserve (Fed) chairman Jerome Powell says the US central bank has some distance left to run in terms of shrinking its balance sheet.
When it comes to setting a stopping point for shedding bonds from the central bank’s holdings, “we haven’t put a specific target on it,” Powell said at an appearance before the Economic Club of Washington.
“It will be a couple of years” before the balance sheet reduction process concludes, Powell said.
Noting that the current effort is passive, Powell also said selling bonds, rather than allowing them to mature and not be replaced, is “not something on the list of active things” officials are considering.
The Fed’s process of reducing its holdings of treasury and mortgage bonds began last summer and is designed to run largely on autopilot alongside the central bank’s ongoing effort to raise rates to lower high levels of inflation.
As of last autumn, the Fed began to allow just under US$100bil (RM430bil) of bonds to mature per month, and it has been sticking to that pace without signalling any looming changes.
The Fed has more than doubled the size of its balance sheet since the advent of the coronavirus pandemic. It used bond purchases first to calm markets in the spring of 2020 and then as a form of stimulus to augment the near-zero short-term rate target then in place.
The Fed’s balance sheet peaked out at around US$9 trillion (RM38.7 trillion) and is now at about US$8.4 trillion (RM36.12 trillion).
Some market participants had been warning that what they saw as dwindling bank reserves could cause the Fed to end its drawdown this year. — Reuters
