Fed Powell Suggests Tightening Program Could End Soon

• Federal Reserve Chair Jerome Powell indicated the central bank is close to concluding its "quantitative tightening" (QT), the reduction of its more than $6 trillion balance sheet, as the system approaches the level of reserves judged to be "somewhat above the level we judge consistent with ample reserve conditions."
• Powell strongly suggested that additional interest rate cuts are likely due to the labour market having "softened pretty considerably," placing the risks of employment losses and unfinished inflation control closer to being in balance.
• The Chair defended the Fed's policy of paying interest on bank reserves, stating that while the Fed has temporary operating losses, eliminating these payments would be a serious mistake that would cause the central bank to "lose control over rates."
• The Federal Reserve's long-stated plan is to cease balance sheet runoff in the coming months once there are indications that liquidity conditions are sufficient, though Powell confirmed the Fed has no plans to return its balance sheet to its pre-Covid size of around $4 trillion.
• The overall economic outlook does not appear to have changed much since the last meeting; however, policymakers are increasingly concerned that the less dynamic and somewhat softer labor market means that the "downside risks to employment appear to have risen."

(Source: CNBC)