The Fed: QT to continue — Fed plans to keep winding down the balance sheet


Reuters

Federal Reserve Board Chairman Jerome Powell speaks during his news conference after a Federal Open Market Committee meeting.

One takeaway from the Federal Reserve’s decision and press conference on Wednesday is that the central bank will continue its so-called quantitative tightening policy.

The Fed said it would keep reducing its balance sheet by up to $ 50 billion per month. And Chairman Powell said that policy would continue.

Since beginning the shrinking process in October 2017, the Fed has trimmed its portfolio of Treasury- and mortgage-backed securities by around $ 365 billion to $ 4.14 trillion.

“We thought carefully about how to normalize policy and came to the view that we would effectively have the balance sheet run off on automatic pilot and use monetary policy, rate policy to adjust to incoming data. I think that has been a good decision,” he said.

“I think that the runoff of the balance sheet has been smooth and has served its purpose and I don’t see us changing that. And I do think that we will continue to use monetary policy, which is to say rate policy as the active tool of monetary policy.”

There had been some expectations from leading Wall Street firms that the Fed will slow down its policy of reducing the balance sheet. Economists at Morgan Stanley forecast the Fed’s balance sheet will stop shrinking in September, with the balance sheet stabilizing around $ 3.8 trillion.

The Powell comment at the press conference coincided with an intraday move lower for U.S. stocks DJIA, -1.60%  .

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