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By Jean Yung
     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell on Friday said the
balance sheet may reach its new normal size by the end of the year and repeated
that the FOMC expects to announce plans to end asset runoffs soon. 
     "The Committee is now well along in our discussions of a plan to conclude
balance sheet runoff later this year," he said in remarks prepared for the
Stanford Institute of Economic Policy Research in California. "We expect to
announce further details of this plan reasonably soon."
     Current estimates of the "new normal" size of the balance sheet suggest
"something in the ballpark" of its fourth quarter projected value, he said. An
accompanying table projects Fed liabilities to be 16.5% of the Congressional
Budget Office's projection for GDP by the end of the year, or around $3.5
trillion, according to MNI calculations. 
     He repeated that the plan could change if economic and financial conditions
warrant and added that after decisions regarding the size of the balance sheet
have been made, the Fed will look at the ultimate maturity composition of the
portfolio. 
     The following are other highlights of the speech: 
     --Reiterated the FOMC's patient approach on rate moves. "With nothing in
the outlook demanding an immediate policy response and particularly given muted
inflation pressures, the Committee has adopted a patient, wait-and-see approach
to considering any alteration in the stance of policy." 
     --Core inflation is quite close to 2% and the health and strength of the
labor market look "as favorable as they have in many decades." 
     --Fed Vice Chair Richard Clarida and other members of the communications
subcommittee are exploring ways to more effectively communicate about the role
of the Fed's quarterly rate projections, or dot plot 
     --Average inflation targeting and other inflation "makeup" schemes deserve
"serious attention" in light of the likelihood that central banks might often be
stuck with scenarios in which rates are near zero, growth is slow and inflation
below target in the future. 
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]