Press conference exchange between STEVE LIESMAN and Fed Chair Jerome Powell:

user: Thank you, Michelle. And thank you, Mr. Chairman. Mr. Chairman, I have one technical question and one question on principle. The technical question is, if, if you’re going to discuss balance sheet at the next upcoming meetings and you won’t begin balance sheet reduction until after you begin rate hikes, it seems to technically mean that you won’t or can’t begin balance sheet reduction until the summer. Is that correct? That’s the first thing. Second of all, you suggested that, that the—with balance sheet running in the background—that you would possibly be raising rates and running off the balance sheet at the same time. That’s the technical question part of it. The principal question I have is, you said it’s going to be running in the background. But the statement on the balance sheet principles says “the Committee is prepared to adjust any of the details of its approach” based on “economic and financial developments,” which suggests there’s something of a reaction function associated to the balance sheet and it won’t be running in the background. So can you give us any sense of the discussion or staff presentation on what is the reaction function surrounding the balance sheet? Thanks.

assistant: So let me—let me—let me start by talking about that last paragraph. So you’ll remember during the last cycle that this process of building up and then shrinking the balance sheet is a complicated one, and it involves, inevitably, surprises. And so during, during the years, during the prior cycle, we amended our balance sheet principles a number of times. Now, we didn’t intend to do that. It just—events required us to do so. So we got a pretty robust paragraph there that says we’re free to do this at any time. And it doesn’t mean we’re going to, but if the situation turns out to be different than we had thought, we’re not going to be—we’re not going to stick with something that isn’t working. That’s all that’s saying. It’s meant to be quite a general statement rather than a, a hint. So, I mean, I like to think that our, you know, our philosophy of the balance sheet is, is embodied in these principles. So, you know, the idea that, for example, the federal funds rate is the primary means of adjusting the stance of policy, that we’ll use—determine the timing and pace of reducing the size of the balance sheet to foster the dual mandate, that we’ll begin to reduce the size after we begin the process of raising rates, and on and on like that. I mean, that— those are all the things that, that try to describe how we will proceed. But maybe at a higher level, to try to get at your question: You know, asset purchases were, were enormously important at the beginning of the recovery in terms of restoring market function, as they were at—right after the—in the critical phase of the Global Financial Crisis. And then after that, they were a macroeconomic tool to support demand. And now the economy no longer needs this, this highly accommodative policy that we put in place. So it’s time to stop asset purchases first and then, at the appropriate time, start to shrink the balance sheet. Now, the balance sheet is, is substantially larger than it needs to be. We’ve identified the end state as—in amounts needed to implement monetary policy efficiently and effectively in the ample-reserves regime. So there’s a substantial amount of, of shrinkage in the balance sheet to be done. That’s going to take some time. We want that process to be orderly and predictable. And so those are some of the ways that I would think this, this lays out our, you know, the way we—the way we’re thinking about this. In terms of the timing, I can’t really help you. You know, it just says after, after we get under way. So we’re—I would say we are, we’re going to have another discussion at, at the next meeting. And my guess is, we’ll have at least one other discussion at the meeting after that. And, you know, we’ll, we’ll tell you as we make progress. And we’ll, you know, we’ll start the process of allowing runoff and shrinking the balance sheet at what we find to be the appropriate time. It’s—I wish I could say more. But, honestly, we haven’t made those decisions. And we actually haven’t even really had the, the important discussions on a lot of the details that we will have at coming meetings.