Federal Reserve press conference, 2024-09-18 — Chair Jerome Powell

Question (Nick Timiraos, Wall Street Journal): And, if I could follow up on the balance sheet, in 2019, when you did the mid-cycle adjustment, you ceased the balance sheet runoff. With a larger cut today, is there any—should there be any signal inferred about how the Committee would approach “end state” on the balance sheet policy?
Answer: So, in the current situation, reserves have really been stable. They haven’t come down. So reserves are still abundant and expected to remain so for some time. As you know, the shrinkage in our balance sheet has really come out of the overnight RRP [facility]. So I think what that tells you is, we’re not thinking about, about stopping runoff because of this at all. We know that these two things can happen side by side. In a sense, they’re both a form of normalization, and so, for a time, you can have the balance sheet shrinking but also be cutting rates.

Question (Catarina Saraiva, Bloomberg): Some of your colleagues have expressed concern that, with starting to cut rates, you could re-ignite demand in housing and see prices go up even more. What’s the likelihood of that, and how would you react to that?
Answer: The housing market, it’s hard to—it’s a game that—the housing market is in part frozen because of lock-in with low rates. People don’t want to sell their homes. So, because they have a very low mortgage, it would be quite expensive to refinance. As rates come down, people will start to move more, and that’s probably beginning to happen already. But remember, when that happens, you’ve got a seller, but you’ve also got a new buyer in many cases. So it’s not, you know, obvious how much additional demand that would make. I mean, the real issue with housing is that we have had, and are on track to continue to have, not enough housing. And so it’s going to be challenging. It’s hard to find—to zone lots that are in places where people want to live. It’s—all of the aspects of housing are more and more difficult, and, you know, where are we going to get the supply? And this is not something that the Fed can, can really fix. But I think, as we normalize rates, you’ll see the housing market normalize. And, I mean, ultimately by getting inflation broadly down and getting those rates normalized and getting the housing cycle normalized, that’s the best thing we can do for house holders. And then the supply question will have to be dealt with by the market and also by government.