Federal Reserve press conference, 2025-12-10 — Chair Jerome Powell

Question (Claire Jones, Financial Times): Just on the ample-reserves point, how concerned were people around the table about some of the tensions we’ve seen in money markets? Thank you.
Answer: Well, I wouldn’t say “concerned.” So what really happened is this: Balance sheet shrinkage, sometimes called QT, went on. We had a framework in place for monitoring it, and nothing happened. The overnight reverse repo facility went down pretty much close to zero. And then, beginning in mid-September, the federal funds rate started to tick up within the range, right? And it ticked up almost all the way to interest on reserve balances. There’s nothing wrong with that. What that’s telling you is that we’re actually in a reserves—in an ample-reserves regime. So, you know, we knew this was going to come. When it finally did come, it came a little quicker than expected, but we were, yeah, absolutely there to take the actions that we said we would take. And those actions are today. So, you know, we announced that we’re resuming reserve management purchases. That is completely separate from monetary policy. It’s just we need to keep an ample supply of reserves out there. Why so big? The answer to that is, you know, if you look ahead, you will see that April 15th is coming up, and our framework is such that we want to have ample reserves even at times when reserves are at a low level temporarily. So that’s what happens on Tax Day. People pay a lot of money to the government, reserves drop sharply and temporarily. So this seasonal buildup that we’ll see in the next few months was going to happen anyway. It was going to happen because April 15th is April 15th. There’s also a secular ongoing growth of the balance sheet. We have to keep reserves, call it, constant as a—as it relates to the banking system or to the whole economy. And that alone calls for us to increase about $20 [or] $25 billion per month. So that’s a small part. That’s going on. It’s also happening in the context of a temporary few month front-loading to get reserves high enough to get through the, you know, the tax period in mid-April. So that’s what’s happening there.

Question (Enda Curran, Bloomberg): Why is there such a division of views between the presidents and the Board members?
Answer: You know, it’s not so stark as that. The views are more varied on each—in each group as well. There’s some of that, but I would say there are also Governors and there are people in both—on both sides in both groups. So I wouldn’t put too much in that.

Question (Christine Romans, NBC News): Thank you. Thank you, Chair Powell. Christine Romans, NBC News. I wanted to ask you about how the higher-income households are really driving spending right now. They’re backed by home equity and stock market wealth. But lower- income consumers are really struggling with the accumulation of five years now of rising prices. It’s price levels, not really the inflation rate, holding some of these families back. How sustainable is this so-called K-shaped economy? And what are the Fed’s thoughts on whether that’s a risk going forward?
Answer: So we do, through our vast network of contacts and just through our observation of what’s going on in the economy, we hear about this a lot. If you listen to the earnings reports for consumer-facing companies that tend to deal with low- and moderate- income people, they’ll all say that we’re seeing people, you know, tightening their belts, you know, changing products that they buy, buying less and that sort of thing. And so it’s clearly a thing. It’s also clearly a thing that, you know, asset values, housing values, and securities values are high, and they tend to be owned by people more at the higher end of the income and wealth. And so, as to how sustainable it is, I don’t know. Most of the consumption does happen by people who have more means. I think, you know, the top third accounts for way more than a third of the consumption, for example. So it’s a good question how sustainable that is. You know, the best we can do is to have, you know, price stability and a strong labor market. And what we saw—for example, what we saw at the end of the, you know, the very, very long expansion that ended with the outbreak of the pandemic, we saw that it was 10 years and 8 months or something like that—the longest one in recorded history. In the last two years, most of the job—the largest part of the wage gains were going to people in the bottom quartile, the bottom part of the low and moderate income. So, you know, having a strong labor market for a long period of time is really, really good from a social standpoint. It’s helping people at the lower-income levels, and that’s what we all want to get back to. But we’ve got to have price stability, and we’ve got to have, you know, full employment, maximum employment.

Question (Christine Romans, NBC News): And, just quickly, you mentioned the housing market remains kind of weak. With these rate cuts that we’ve seen, is there a chance we’re going to see more affordability in the housing market so more people can maybe enjoy that part of wealth creation? I mean, the average age—the median age of a first-time homebuyer is now 40 years old. That’s the highest on record.
Answer: Yeah, so the housing market faces some really significant challenges. And I don’t know that, you know, a 25 basis point decline in the federal funds rate is going to make much of a difference for people. You know, housing supply is low. Many people have very, very low-rate mortgages from the pandemic period, and they kept refinancing and caught the really low. So it’s made it expensive for them to move. And, you know, we’re a ways away from that changing. Also, we’re just—we haven’t built enough housing in the country for a long time, and so a lot of estimates suggest that we just need more housing of different kinds. So housing is going to be a, you know, a problem. And, you know, really the tools to address it are—we can raise and lower interest rates, but we don’t really have the tools to address, you know, a secular housing shortage—a structural housing shortage.