Press conference exchange between MICHAEL DERBY and Fed Chair Jerome Powell:

user: Yes, thank you for taking my question. I wonder if the Fed has given any thoughts yet to the endgame for the balance sheet in terms of, you know, once you get the taper process complete, will you hold the balance sheet steady, or will you allow it to start passively winding down? And then, in a related question, do you have any greater insight into what Fed bond buying actually does for the economy? In terms of its economic impact, have you been able to, you know, measure it or quantify it in any fashion, you know, because I’m sure there’s often been questions about, what is bond buying actually doing to help the economy?

assistant: Sure. So in terms of the balance sheet, those questions that you mention—we haven’t gone back to them. Now that we’ve tapered, I expect ’s exactly what we’ll do in coming meetings. And we’ll do it in an orderly fashion, and we’ll talk about reinvestment and all those things. And we don’t have to make decisions on those yet. But, you know, typically, when we’re doing a new subject like that, we’ll have a series of briefings and discussions. And that’s what we will now begin to do. In terms of the effect of asset purchases on the economy, so, there’s a tremendous amount of research and scholarship on this. And, you know, you can kind of—you can find different people coming out with different views. But I would say, the most mainstream view would be that you’re at the effective lower bound, so how do you affect longer-term rates? There are two ways. One, so you can’t lower rates—let’s say you can’t lower rates any further, hypothetically. So you can give forward guidance. You can say, we’re going to keep the rates low for a period of time, either for a specific period, or until certain conditions are met. The markets will do the math, and that’ll have an effect on longer-term borrowings even, you know, 10, 30 years out thing. So that’s one thing. The other thing you can do is, you just go buy those securities, buy longer-term securities. That will drive down longer-term rates and hold them lower, and, you know, rates right across the, right across the rate spectrum matter for borrowers. So lower rates encourage more borrowing, encourage more economic activity. People—you can service your debt. You have more free cash flow. You know, it’s not different from what we do at the short end. So that was discussed long before anybody did it. That was—I think Milton Friedman said was what you could do if you were pinned at the lower bound, many, many years ago. So, anyway, that’s how it’s supposed to work. And, you know, it’s quite hard to be precise about these things because, you know, you only have one economy, and you can’t run two different economies right next to each other and do a scientific experiment. But most people find—most of the findings are that it does support economic activity in the way that you would expect, which is to say, at the margin, more economic activity with lower rates, which is why we do what we do. More accommodative financial conditions lead to more economic activity, over time, with a lag. So I think that’s the main finding I would say on QE.