MNI POLICY: Fed's Powell: QT May End When Reserves Near $1T

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell said Tuesday balance

sheet normalization may conclude when the pool of bank reserves shrinks to

around $1 trillion after also setting aside a buffer to ensure low interest rate

volatility.

     "We don't have a precise notion" of the ultimate destination for the

balance sheet, but it is driven by bank demand for reserves, which has risen as

a result of post-crisis regulations, he told the Senate Banking Committee in his

semi-annual testimony on monetary policy to Congress.

     "We believe that the public estimates that are out there of around a

trillion dollars plus a buffer" is a "reasonable starting point of an estimate

of where we might wind up," he said.

     Since October 2015, when the Fed ceased reinvesting up to $50 billion of

its maturing assets every month, the central bank has reduced bank reserves to

around $1.6 trillion, with total assets at around $4.0 trillion.

     Most Fed officials expect so-called quantitative tightening to end later

this year, according to the minutes of the January FOMC meeting, but Powell did

not give any specific timeline for the plan Tuesday.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MT$$$$]