Press conference exchange between NICK TIMIRAOS and Fed Chair Jerome Powell:

user: Good afternoon, Chair Powell. Nick Timiraos of the Wall Street Journal. I, I have a couple of questions on the balance sheet. The statement on the balance sheet today calls for “significantly reducing” your holdings. What does that mean? And then, apart from moving sooner and faster to shrink the holdings, are there any other ways in which you and your colleagues are seriously thinking about recalibrating this process? And, finally, how much disagreement is there around how you should use this tool, including active sales rather than passive sales or changes in the composition of reinvestments? Thank you.

assistant: So I’m afraid to tell you that those are all great questions, and they’re questions that the Committee is just turning to now. So we had—we had a discussion, as you know, at the last meeting, an introductory discussion of the balance sheet and a teeing up of the issues. At this meeting, we’ve gone through and carefully put together a set of principles at a high level. And those are meant to guide the actual decisions we’ll make about the pace and about all of the questions that you’re, you’re asking. And I expect that this process will, will be something that we spend time on in coming meetings. I can’t tell you how many. I can’t tell you how long it will take. But—and then, you know, at the appropriate time, we’ll provide additional information. So I did—the last cycle when we—when we went through balance sheet issues, we did find that over, over the course of two or three meetings, for example, we did come to interesting and better answers, we thought. So we’re just in that process now. And at the next meeting, we’ll be turning to, you know, more of the details that you’re—that you’re asking about. I would say this. The balance sheet is, is much bigger. I’d say it has a shorter duration than the last time. And the economy’s much stronger, and inflation is much higher. So—and I think that leads you to—and I said, I’ve said this—being willing to move sooner than we did the last time and also perhaps faster. But beyond that, it’s really—it’s really not appropriate for me to speculate exactly what that would be. And, and—but I would point you to principle number one, which is “the Committee views changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.” So we do want the federal funds rate—we, we want to operationalize that as the primary means. And we want the balance sheet to be declining in a predictable manner, and we want it to be declining primarily by adjusting reinvestments.

user: So, if I could follow on that, raising rates and reducing the balance sheet both restrain the economy, both tighten monetary policy. How should we think about the relationship between the two? For example, how much passive runoff is equal to every ¼ percentage point increase in your benchmark rate?

assistant: So, again, we think of the balance sheet as, as moving in a predictable manner, in the background, and that the active tool meeting to meeting is not both of them, it’s the federal funds rate. There are—there are rules of thumb—I’m reluctant to land on one of them—that, that equate this. And—but there’s also an element of, of uncertainty around the balance sheet. I think we have a much better sense, frankly, of how rate increases affect financial conditions and, hence, economic conditions. Balance sheet policy is, is still a relatively new thing for, for the markets and for us, so we’re less certain about that. So, again, our—I think our—the pattern we’ll follow is to—is to arrive at a, you know, a timing and a pace and composition and all those things and then announce that with advance notice, and, and it will—it will start in the background. And then we’ll look to have that just running in the background and have—and have the interest rates, again, be the active tool of monetary policy. That’s, that’s at least the plan. I can’t tell you much more about any of the— any of the very good issues about size, pace, composition, those sorts of things. But we’ll be turning to all of those at coming meetings.