Fed’s Powell: Future path of monetary policy driven by data, risk assessments

FED’S POWELL: DATA BEFORE U.S. GOVERNMENT SHUTDOWN SUGGESTED GROWTH MAY BE BETTER THAN EXPECTED Understanding the Fed’s Balance Sheet Thank you, Emily. And thank you to the National Association for Business Economics for the Adam Smith Award. It is an honor just to be mentioned alongside past recipients, including my predecessors Janet Yellen and Ben Bernanke. Thank you for this recognition and for the opportunity to speak with you today. Monetary policy is more effective when the public understands what the Federal Reserve does and why. With that in mind, I hope to enhance understanding of one of the more arcane and technical aspects of monetary policy: the Federal Reserve's balance sheet. A colleague recently compared this topic to a trip to the dentist, but that comparison may be unfair—to dentists.1 Today, I will discuss the essential role our balance sheet played during the pandemic, along with some lessons learned. I will then review our ample reserves implementation framework and the progress we have made toward normalizing the size of our balance sheet. I will conclude with some brief remarks on the economic outlook. One of the primary purposes of a central bank is to provide the monetary foundation for the financial system and the broader economy. This foundation is made of central bank liabilities. On the Fed's balance sheet, the liability side of the ledger totaled $6.5 trillion as of October 8, and three categories account for roughly 95 percent of that total.2 First, Federal Reserve notes—that is, physical currency—totaled $2.4 trillion. Second, reserves—funds held by depository institutions at the Federal Reserve Banks—totaled $3.0 trillion. These deposits allow commercial banks to make and receive payments and meet regulatory requirements. Reserves are the safest and most liquid asset in the financial system, and only the Fed can create them. The adequate provision of reserves is essential to the safety and soundness of our banking system, the resilience and efficiency of our payments system, and ultimately the stability of our economy. FED’S POWELL: AVAILABLE DATA SHOW TARIFFS PUSHING UP PRICE PRESSURES FED’S POWELL: U.S. CENTRAL BANK HAS OTHER DATA BEYOND GOVERNMENT SOURCES TO USE FED’S POWELL: CURRENT FED POLICY TOOLKIT WORKING VERY WELL POWELL: OUTLOOK HASN’T CHANGED MUCH SINCE SEPTEMBER FED MEETING FED’S POWELL: MAY BE APPROACHING END OF BALANCE SHEET CONTRACTION ‘IN COMING MONTHS’

FED'S POWELL SAYS AS RISKS COME MORE INTO BALANCE POLICY NEEDED TO MOVE TO BEING MORE NEUTRAL || IF THE FED MOVES TOO QUICKLY IT MAY LEAVE THE INFLATION JOB UNFINISHED FED'S POWELL SAYS DATA SINCE THE JULY MEETING SHOWS LABOR MARKET HAS SOFTENED CONSIDERABLY Fed's Powell: Will Not Try To Pinpoint Breakeven Rate Of Employment; Standard Error Itself Is Perhaps 50k - Breakeven Rate Of Job Growth Has Come Down A Great Deal POWELL: RESEARCH POINTS TO LONGER LAGS FOR POLICY TO INFLUENCE JOBS AND INFLATION FED'S POWELL SAYS THERE IS PLAUSIBLE DATA FOR THE STATE OF THE JOB MARKET, THOUGH PRIVATE DATA BEST AS A SUPPLEMENT || THE SUBSTITUTE ARE BETTER FOR THE JOB MARKET THAN THEY ARE FOR INFLATION

FED'S POWELL SAYS ECONOMIC ACTIVITY DATA ARE SURPRISING TO THE UPSIDE, OFFERING SOME TENSION WITH THE LABOR MARKET DATA Fed's Powell: Overall, Indicators Show Reserves Are Still Abundant - Beginning To See ‘A Little Tightening’ In Money Markets - Not So Far Away On B/Sheet But A Ways To Go POWELL: THE FED HAS COME THROUGH CRISIS AS WELL OR BETTER THAN ANY COUNTRY IN THE WORLD CONSENSUS IS GREAT BUT MORE IMPORTANT IS TO GET THE RIGHT POLICY DECISION THERE IS A VERY HEALTHY DEBATE ABOUT POLICY, GIVEN THE SITUATION OF TENSION BETWEEN THE MANDATES FED'S POWELL SAYS FURTHER DECLINES IN JOB OPENINGS MIGHT WELL START TO SHOW UP IN RISING UNEMPLOYMENT

BoE Gov. Bailey: I am seeing some softening of the labor market. BoE Gov. Bailey: We have to balance against above-target inflation. BoE Gov. Bailey: We are not seeing a lot of impact yet on prices from tariffs. BoE Gov. Bailey: UK businesses tell me they are delaying investment decisions due to uncertainty.