US Federal Reserve Chairman Jerome Powell said on Tuesday\nthat the Federal Reserve will soon begin to increase its balance sheet again,\npartly in response to the shake-up in lending markets in September.<\/p>\n\n\n\n
The central bank chief said in a speech in Denver that he\nwould explain how the Fed would expand the securities it holds in the coming\ndays, although Powell stressed that the approach should not be confused with\nquantitative easing during and after the financial crisis.<\/p>\n\n\n\n
Powell and his fellow policymakers see the economy as strong\nbut vulnerable to shocks, especially from the global slowdown, trade and\ngeopolitical events such as Brexit. He said the Fed is committed to supporting\nthe recovery but relies on data rather than a predetermined path to cut rates.<\/p>\n\n\n\n
The Fed cut its benchmark rate twice in 2019 and is expected\nto approve a third cut later this month.<\/p>\n\n\n\n
On the balance sheet issue, repurchase markets have been\nstalled for several weeks, in part due to funding constraints caused by funds\nabsorbed from the system because companies paid taxes and the Treasury settled\nbond auctions. The lack of funding has caused the repo rate to rise by 10% and\nthe Fed’s standard funds rate, which banks impose on each other for short-term\nborrowing, exceeding the target range by 5 basis points.<\/p>\n\n\n\n
Since then, the Federal Reserve has been conducting\ntemporary operations in which it provides cash for its highly secure assets.\nPowell said the Fed was about to launch more permanent operations to make sure\nthe system had adequate reserves and controlled market volatility.<\/p>\n\n\n\n
“This volatility can impede the effective\nimplementation of monetary policy, and we are addressing it,” Powell said\nin prepared remarks. “Indeed, my colleagues and I will soon announce\nmeasures to add to the supply of reserves over time,” Powell said.<\/p>\n\n\n\n
Federal Reserve officials were considering the appropriate\nlevel of precautions to keep things in order. The level of cash held by banks\nin the Federal Reserve fell to about $1.5 trillion from the peak of $2.8\ntrillion in September 2014 as the Fed ended its liquidity programs. Three\nrounds of quantitative easing, or asset purchases, raised the balance sheet to\n$4.5 trillion before the Federal Reserve began allowing revenues to begin each\nmonth.<\/p>\n\n\n\n
Powell said the Fed was stabilizing the “ample\nreserves” system and was now seen to be at the required level of banks.\n“As we indicated in our March statement on balance sheet normalization, at\nsome point, we will begin increasing our securities holdings to maintain an\nappropriate level of reserves,.”<\/p>\n\n\n\n
Interest rate policy and the balance sheet approach followed\nPowell’s presentation on “profound changes in the economy” and what\nchallenges it faces in the current circumstances.<\/p>\n\n\n\n
He broke the challenges in three questions: how high gas\nprices can affect the economy, whether productivity is adequately measured, and\nwhether the labor market is tight.<\/p>\n\n\n\n
Powell said the jump in gas prices probably could be\nabsorbed and was likely to have little overall effect. Current productivity\nmeasures are likely to be inadequate due to technological factors, he added.\nJobs, he said, are likely to grow more slowly than data suggest, although they\nare still expanding fast enough to absorb new entrants into the workforce.<\/p>\n","protected":false},"excerpt":{"rendered":"
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