When it comes to setting a stopping point for shedding bonds from the central bank's holdings, "we haven’t put a specific target on it,” Powell said at an appearance before the Economic Club of Washington.
"It will be a couple of years" before the balance sheet reduction process concludes, Powell said. Noting that the current effort is passive, Powell also said selling bonds, rather than allowing them to mature and not be replaced, is "not something on the list of active things” officials are considering.
The Fed's process of reducing its holdings of Treasury and mortgage bonds began last summer and is designed to largely on autopilot alongside the central bank's ongoing effort to raise rates to lower high levels of inflation.
As of last autumn, the Fed began to allow just under $100 billion per month of bonds to mature, and it has been sticking to that pace without signaling any looming changes.
The Fed more than doubled the size of its balance sheet
since the advent of the coronavirus pandemic. It used bond
purchases first to calm markets in the spring of 2020 and then
as a form of stimulus to augment the near zero short-term rate
target then in place.
The Fed's balance sheet peaked out at right around $9 trillion and is now at about $8.4 trillion. Some market participants
had been warning
that what they saw as dwindling bank reserves could cause
the Fed to end its drawdown this year.
But officials,
in recent comments
, have said that bank liquidity, when properly measured, is
still quite large, which gives the Fed a lot of room to run on
cutting holdings.
(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)
