Powell Claims Fed’s Balance Sheet will be ‘Substantially Smaller’

Several of his recent appearances have generated large market swings in both directions.

Mr. Clarida used the word "crosswinds" four times to describe such developments as moderating global growth and tighter financial conditions.

"It will be substantially smaller than it is now", Powell said Thursday at the Economic Club of Washington, adding that the balance sheet needs to be at a "more normal level" without clarifying what that level was.

Since the December meeting, a rising number of policymakers, including Fed Chairman Jerome Powell, have argued for patience.

The S&P gained 3.43 percent, and the yield on the 10-year Treasury note rose 11 basis points.

St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore, Oct. 8, 2018. The Fed is projecting two interest-rate hikes in 2019.

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell stated.

"Indeed, I personally suspect that financial market sentiment may have become unduly pessimistic", Rosengren said.

At the same time, Fed officials don't want to give the impression they think the USA economy is vulnerable.

Powell was also asked about the Fed's plans to keep trimming its holdings of Treasury bonds and mortgage-backed securities, which it had purchased following the 2008 financial crisis as a way to keep long-term interest rates low and support an economy as it struggled to climb out of the worst recession since the 1930s. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

Since then, Powell and other Fed officials have walked back comments that investors saw as hawkish on inflation while also risking an economic slowdown.

"The word "patient" is used often when the Fed's policy direction is still tightening but its next rate hike can wait for a considerable time".

"We can afford to be patient about assessing how to adjust our policy stance, he said".

The central bank's quarterly forecast in December showed Fed officials still expect two more increases in 2019.

World Bank, an worldwide financial institution, also expected the growth rate of the USA economy would drop to 2.5 percent in 2019.

He agreed with the prevailing view of the U.S. economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

"Concerns over escalating trade tensions, global growth prospects, and the sustainability of corporate earnings growth were among the factors that appeared to contribute to a significant drop in USA equity prices", the minutes report the Fed's staff told its policymakers.


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