Powell says Fed is nearing decision on balance sheet runoff

Federal Reserve Chairman Jerome Powell said on Wednesday that policymakers at the U.S. central bank are close to announcing their decision to end the reduction of bonds it’s holding on its $4 trillion balance sheet.

“We’re close to agreeing to a plan, which would light the way to the end of the process,” Powell said during testimony before the House Financial Services Committee. “My guess is we’ll be announcing something fairly soon.”

In 2017, the Fed began to shrink its $4.5 trillion holdings of bonds and other debt securities, known as its balance sheet, which was expanded during the financial crisis as a way to inject cash into struggling commercial banks. The unprecedented amount of bond holdings resulted in the reduction of interest rates. Although they initially indicated the process could take years -- the balance sheet has since decreased to $4.01 trillion -- the latest discussions suggest the runoff will end much quicker than originally anticipated.

According to Powell, the rate-setting Federal Open Market Committee has had three consecutive meetings on the balance sheet and has agreed to the framework of a plan that they “hope to announce soon.” He noted the Fed will be in a position to stop the runoff “later this year.”

“We can’t go back to a very small balance sheet,” Powell said during the semiannual hearing.

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Minutes from the January FOMC previous meeting revealed that officials agreed to plan to end the reduction of bonds on their balance sheet. The next FOMC meeting is scheduled for March 19-20.