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 Photographs
Federal Reserve Chair Jerome Powell on Tuesday urged the central financial institution is nearing some extent the place it’ll cease decreasing the dimensions of its bond holdings, however gave no long-run indication of the place rates of interest are heading.
Chatting with the Nationwide Affiliation for Enterprise Economics convention in Philadelphia, Powell offered 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 steadiness sheet.
Whereas he offered 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 steadiness sheet runoff when reserves are considerably above the extent we decide per ample reserve circumstances,” 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 resolution.”
Although steadiness sheet questions are within the weeds for financial coverage, they matter to monetary markets.
When monetary circumstances are tight, the Fed goals for “considerable” reserves in order that banks have entry to liquidity and may preserve the financial system working. As circumstances change, the Fed goals for “ample” reserves, a step down that stops an excessive amount of capital from sloshing across the system.
Through the Covid pandemic, the central financial institution had aggressively bought Treasurys and mortgage-backed securities, swelling the steadiness sheet to shut to $9 trillion.
Since mid-2022, the Fed has been step by step permitting maturing proceeds of these securities to roll off the steadiness 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 tip is shut.
He famous that “some indicators have begun to emerge that liquidity circumstances are step by step tightening” and could possibly be signaling that decreasing reserves additional would hinder development. Nevertheless, he additionally mentioned the Fed has no plans to return to its pre-Covid steadiness sheet measurement, 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 basic fund. Nevertheless, as a result of it needed to elevate rates of interest so shortly to manage inflation, it has seen working losses. Congressional leaders resembling Sen. Ted Cruz, R-Texas, have urged terminating the funds on reserves.
Nevertheless, Powell mentioned that may be a mistake and would hinder the Fed’s potential to hold out coverage.
“Whereas our web curiosity revenue has quickly been adverse because of the fast rise in coverage charges to manage inflation, that is extremely uncommon. Our web revenue will quickly flip constructive once more, because it sometimes has been all through our historical past,” he mentioned. “If our potential to pay curiosity on reserves and different liabilities had been eradicated, the Fed would lose management over charges.”
Views on the financial system
On the bigger challenge of rates of interest, Powell typically caught to the latest script, specifically that policymakers are involved that the labor market is tightening and skewing the steadiness of dangers between employment and inflation.
“Whereas the unemployment fee remained low by means of August, payroll positive factors have slowed sharply, seemingly partially as a consequence of a decline in labor drive development as a consequence of decrease immigration and labor drive 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 share level discount on the federal funds fee. Whereas markets strongly anticipate two extra cuts this yr, and a number of other Fed officers lately have endorsed that view, Powell was noncommittal.
“There is no such thing as a risk-free path for coverage as we navigate the stress between our employment and inflation targets,” he mentioned.
The Fed has been hampered considerably by the federal government shutdown and the affect it has had on financial information releases. Policymakers depend on metrics just like the nonfarm payrolls report, retail gross sales and numerous worth indexes to make their selections.
Powell mentioned the Fed is continuous to investigate circumstances primarily based on the info that’s obtainable.
“Based mostly on the info that we do have, it’s honest 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, nevertheless, present that development in financial exercise could also be on a considerably firmer trajectory than anticipated.”
The Bureau of Labor Statistics has mentioned it has referred to as staff again to organize the month-to-month client worth index report, which can be launched subsequent week.
Powell mentioned obtainable information has confirmed that items costs have elevated, largely a perform of tariffs relatively than underlying inflation pressures.
