Jerome Powell, chairman of the US Federal Reserve, throughout a information convention following a Federal Open Market Committee (FOMC) assembly in Washington, DC, US, on Wednesday, Sept. 17, 2025.
Kent Nishimura | Bloomberg | Getty Photos
Federal Reserve Chair Jerome Powell on Tuesday steered the central financial institution is nearing a degree the place it would cease lowering the dimensions of its bond holdings, and offered a number of hints that extra rate of interest cuts are within the playing cards.
Talking to the Nationwide Affiliation for Enterprise Economics convention in Philadelphia, Powell delivered a dissertation on the place the Fed stands with “quantitative tightening,” or the trouble to scale back the greater than $6 trillion of securities it holds on its stability sheet.
Whereas he provided no particular date of when this system will stop, he mentioned there are indications the Fed is nearing its objective of “ample” reserves obtainable for banks.
“Our long-stated plan is to cease stability sheet runoff when reserves are considerably above the extent we decide per ample reserve situations,” Powell mentioned in ready remarks. “We could method that time in coming months, and we’re intently monitoring a variety of indicators to tell this determination.”
On rates of interest, the central financial institution chief didn’t present particular steering on a path decrease, however feedback about weak spot within the labor market indicated that easing is firmly on the desk, as monetary markets count on.
“If we transfer too rapidly, then we could depart the inflation job unfinished and have to come back again later and end it. If we transfer too slowly, there could also be pointless losses, painful losses, within the employment market. So we’re within the tough scenario of balancing these two issues,” he mentioned.
“The info we obtained proper after the July assembly confirmed that … that the labor market has truly softened fairly significantly, and places us in a scenario the place the 2 dangers are nearer to being in stability,” Powell added.
Different Fed officers have mentioned lately that the falling labor market is taking priority of their pondering, resulting in the chance of extra fee cuts forward.
Steadiness sheet math
Powell, although, centered most of his speech on the Fed’s holdings of Treasurys and mortgage-backed securities.
Although stability sheet questions are within the weeds for financial coverage, they matter to monetary markets.
When monetary situations are tight, the Fed goals for “plentiful” reserves in order that banks have entry to liquidity and may hold the economic system operating. As situations change, the Fed goals for “ample” reserves, a step down that forestalls an excessive amount of capital from sloshing across the system.
Throughout the Covid pandemic, the central financial institution had aggressively bought Treasurys and mortgage-backed securities, swelling the stability sheet to shut to $9 trillion.
Since mid-2022, the Fed has been progressively permitting maturing proceeds of these securities to roll off the stability sheet, successfully tightening one leg of financial coverage. The query had been how far the Fed wanted to go, and Powell’s feedback point out that the top is shut.
He famous that “some indicators have begun to emerge that liquidity situations are progressively tightening” and may very well be signaling that lowering reserves additional would hinder progress. Nevertheless, he additionally mentioned the Fed has no plans to return to its pre-Covid stability sheet dimension, which was nearer to $4 trillion.
On a associated matter, Powell famous considerations over the Fed persevering with to pay curiosity on financial institution reserves.
The Fed usually remits curiosity it earns from its holdings to the Treasury normal fund. Nevertheless, as a result of it needed to increase rates of interest so rapidly to manage inflation, it has seen working losses. Congressional leaders comparable to Sen. Ted Cruz, R-Texas, have steered terminating the funds on reserves.
Nevertheless, Powell mentioned that may be a mistake and would hinder the Fed’s capability to hold out coverage.
“Whereas our internet curiosity earnings has briefly been unfavorable because of the fast rise in coverage charges to manage inflation, that is extremely uncommon. Our internet earnings will quickly flip optimistic once more, because it usually has been all through our historical past,” he mentioned. “If our capability to pay curiosity on reserves and different liabilities have been eradicated, the Fed would lose management over charges.”
Views on the economic system
On the bigger difficulty of rates of interest, Powell typically caught to the latest script, particularly that policymakers are involved that the labor market is tightening and skewing the stability of dangers between employment and inflation.
“Whereas the unemployment fee remained low by August, payroll features have slowed sharply, possible partly because of a decline in labor power progress because of decrease immigration and labor power participation,” he mentioned. “On this much less dynamic and considerably softer labor market, the draw back dangers to employment seem to have risen.”
Powell famous that the Federal Open Market Committee responded in September to the scenario with 1 / 4 proportion level discount on the federal funds fee. Whereas markets strongly count on two extra cuts this yr, and a number of other Fed officers lately have endorsed that view, Powell was noncommittal.
“There isn’t any risk-free path for coverage as we navigate the stress between our employment and inflation objectives,” he mentioned.
The Fed has been hampered considerably by the federal government shutdown and the affect it has had on financial knowledge releases. Policymakers depend on metrics just like the nonfarm payrolls report, retail gross sales and varied worth indexes to make their selections.
Powell mentioned the Fed is constant to investigate situations primarily based on the information that’s obtainable.
“Based mostly on the information that we do have, it’s truthful to say that the outlook for employment and inflation doesn’t seem to have modified a lot since our September assembly 4 weeks in the past,” Powell mentioned. “Knowledge obtainable previous to the shutdown, nonetheless, present that progress in financial exercise could also be on a considerably firmer trajectory than anticipated.”
The Bureau of Labor Statistics has mentioned it has known as staff again to organize the month-to-month client worth index report, which shall be launched subsequent week.
Powell mentioned obtainable knowledge has confirmed that items costs have elevated, largely a operate of tariffs relatively than underlying inflation pressures.