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could finalize balance sheet plan in May -Breaking


© Reuters. Federal Reserve Chief Jerome Powell watches as he gives evidence before the U.S. House Financial Services Committee on Capitol Hill, Washington, U.S.A, March 2, 2022. REUTERS/Tom Brenner

By Jonnelle Marte

NEW YORK (Reuters – Federal Reserve policymakers are making “excellent progress” in reducing central bank’s almost $9 trillion balance sheet. Details could be finalized at the next Fed policy meeting in May according to Fed Chair Jerome Powell on Wednesday.

According to him, overall, it would be “familiar”, to how the Fed has reduced bond holdings from 2017 through 2019, but it will move faster and will occur earlier than usual in the cycle.

He said that the Fed would provide additional details about the plan’s parameters in its minutes from Wednesday’s policy meeting, which will be released within three weeks.

The U.S. central banks balance sheet nearly doubled in the aftermath of the pandemic, as they snatched up trillions of Dollars in Treasuries (and mortgage-backed securities) to first calm the markets, and then support the economy.

This month, the Fed stopped buying bonds. Powell stated that shrinking the portfolio would help to tighten monetary and financial policy, as well as complement the Fed’s decision to raise interest rates in an effort to control inflation.

The Fed stated earlier this year that balance sheet cuts would not be achieved by selling bonds, but rather through letting securities mature and allowing them to roll over. Investors believe the Fed will establish monthly caps that control and predict the rate of the decrease.

Powell stated that “we’ll keep the wider financial context in mind when making the decisions on the timing of our reductions.” Powell stated, “We will always use our tools for macroeconomic stability and to prevent uncertainty from a high-stress situation.”

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