Powell Says Balance-Sheet Debate Underway, But This Time Is Different
Federal Reserve Chair Jerome Powell said officials have begun to debate when to start shrinking the central bank’s massive balance sheet, but their approach the last time they did this may not be the best way this time around.
Officials “haven’t made any decisions at all about when runoff would start,” Powell told a press conference Wednesday after the Federal Open Market Committee sped up its removal of policy support to end asset purchases in mid-March.
Noting that policy makers had a first discussion on the balance sheet at their meeting and would keep the conversation going at their next meeting and the one after that, Powell said the debate included a focus on lesson’s learned.
“We looked back at what happened in the last cycle and people thought that was interesting and informative,” he said. “But to one degree or another people noted that this is just a different situation and those differences should inform the decisions we make about the balance sheet this time.”
Past experience shows that how the Fed manages its balance sheet matters, although the U.S. central bank has also adapted and in July 2021 it created two standing repo facilities to help ease money-market pressures at times of stress.