Federal Reserve press conference, 2023-03-22 — Chair Jerome Powell

Question (Jeanna Smialek, New York Times): And the final point—you know, can we feel confident that these weaknesses don’t exist elsewhere, given that they got missed at this bank?
Answer: These are not weaknesses that are—that are at all broadly through the banking system. This was—this was a bank that was an outlier in terms of both its percentage of, of uninsured deposits and in terms of its holdings of duration risk. And again, supervisors did get in there, and, and they were, as you know, obviously, you know they were— they were on this issue, but nonetheless, this, this still happened. And so that’s really the nature of the interview—sorry, of the review—is to discover that.

Question (Rachel Siegel, Washington Post): And one other question: Would you be open to an independent investigation, separate from the Fed’s probe?
Answer: I welcome—it’s 100 percent certainty that there will be independent investigations and outside investigations and all that. So we welcome—when a bank fails, there are investigations. And, of course, we welcome that.

Question (Kyle Campbell, American Banker): Hi, Chair Powell—thanks for taking the question. Kyle Campbell with American Banker. I have a couple questions about the balance sheet. First of all, I’m curious at what point the financial supports that the Fed is extending through the discount window and through its enhanced lending facility might be at odds with the objective of reducing the balance sheet. And I’m also curious what your thoughts are on the—not just the availability of reserves but the distribution of them throughout the banking system and at what point you might be concerned about it being scarce for certain banks.
Answer: So—People think of QE and QT in different ways, so let me be clear about how I’m thinking about these recent developments. So the recent liquidity provision that has increased the size of our balance sheet but the intent and the effects of it are very different from what we—from when we expand our balance sheet through purchases of longer-term securities. Large-scale purchases of long-term securities are, are really meant to alter the stance of policy by pushing down—pushing up the price and down the rates, longer-term rates, which supports demand through channels we understand fairly well. The balance sheet expansion is really temporary lending to banks to meet those special liquidity demands created by the recent tensions; it’s not intended to directly alter the stance of monetary policy. We do believe that it’s working. It’s having its intended effect of bolstering confidence in the banking system and thereby forestalling what might otherwise have been an abrupt and outsized tightening in financial conditions. So that’s working. In terms of the distribution of reserves, we, we don’t see ourselves as, as running into reserve shortages. We, we think that our program of allowing our balance sheet to, to run off predictably, predicatbly and passively is working. And of course we’re, we’re always prepared to, to change that if that changes. But we don’t see any evidence that that’s changed.