Federal Reserve press conference, 2024-03-20 — Chair Jerome Powell

Question (Ann Saphir, Reuters): Hi, yes, Chair Powell. Could you speak a little bit more about the timing? Is there enough data between now and, say, May to be able to get the kind of confidence that you say you still need? Or, by June, is there enough data for you? Just give us a sense of your thinking there. Thank you.
Answer: Yeah. So we make decisions meeting by meeting. And we didn’t make any decisions about future meetings today. Those are going to depend on our ongoing assessment of the incoming data, the evolving outlook, and the balance of risks. So I really don’t have anything for you on any specific meeting, looking forward.

Question (Victoria Guida, Politico): Hi, Victoria Guida with Politico. Also on the balance sheet, you know, can you talk a little bit about how the outlook for the banking sector might impact your balance sheet plans? Do you worry that, as deposits start to shrink, that we could see more turbulence?
Answer: You know, we’ll be watching carefully. But one of the reasons we’re slowing down—we will soon enough, fairly soon I should say, slow down—is that we want to avoid any, any kind of that turbulence. I wasn’t thinking particularly about the banking- sector turbulence, but we—and we had some indicators the last time. This is our second time in doing this, and I think we’re going to be paying a lot of attention to the things that started to happen and that foreshadowed what eventually happened at the end of that tightening cycle where we wound up in a short[-of-]reserves situation. And we don’t want to do that again. And I think now we have a better sense of what are the indicators. It isn’t—it wasn’t so much in the banking system as it was around, for example, where federal funds are trading relative to the administered rates and where secured rates are relative to the administered rates. Those sorts of things. We will always be watching the banking system for similar signs, though.

Question (Jean Yung, MNI): Hi Chair Powell. Jean Yung with MNI Market News. I wanted to ask also about the balance sheet. Will you—you said that starting the taper sooner could get you to a smaller balance sheet size. Does that mean you don’t have to make a decision on when to end QT at this point? And will you be setting up the process for deciding that sooner, or will you wait until we’re close to the end?
Answer: So it’s sort of ironic that, by going slower, you can get farther. But that’s the idea. The idea is that, with a smoother transition, you won’t—you’ll run much less risk of kind of liquidity problems, which can grow into shocks, and which can cause you to stop the process prematurely. So that’s—in terms of how it ends, we’re going to be monitoring carefully money market conditions and asking ourselves whether they—what they’re telling us about reserves. Are they—right now, we would characterize them as “abundant,” and what we’re aiming for is “ample” and, you know, which is a little bit less than abundant. So there isn’t a— you know, there’s not a dollar amount or a percent of GDP or anything like that where we think we have a really pretty clear understanding of that. We’re going to be looking at what these— what’s happening in money markets, in particular—a bunch of different indicators, including the ones I mentioned, to tell us when we’re getting close. Then, though, you reach a point ultimately where you stop allowing the balance sheet to run off and you—but then, from that point, there’s another period in which nonreserves—nonreserve liabilities grow organically, like currency, and that also shrinks the reserves at a very slow pace. So you have a, you know, a slower pace of runoff, which we’ll have fairly soon. Then you have another time where you effectively hold the balance sheet constant and allow nonreserve liabilities to expand. And then that ultimately brings you, ideally, in for—brings it into a nice, easy landing at a level that is above—you know, above what we think the lowest possible ample number would be. We’re not trying for that. We want to have a cushion, a buffer, because we know that demand for reserves can be very volatile. And we don’t want to, again, find ourselves in a situation where there aren’t reserves, and we have to turn around and buy assets and put reserves back in the banking system the way we did in 2019 and ’20.