Powell Excerpt: Equilibrium Balance Sheet Size Unknown

     WASHINGTON (MN) - The following is a response of Federal Reserve Chairman

Jerome Powell to a question from a reporter at his press conference following

Wednesday's Federal Open Market Committee meeting.

Question: Jean Yung with Market News. I have a question about the ultimate size

of the balance sheet. How will the fed judge what is a reasonable level for

financial institutions demand for reserves when it appears to be rising at a

fast pace over the past year and perhaps at a faster pace than can be explained

by regulatory changes during that same timeframe. Would you prefer to err on the

side of being more generous, or would you try to encourage banks from hold -- to

hold less reserves.

Powell: Let me be clear, I don't know that demand for reserves has risen over

the past years. I think our understanding of demand for reserves -- remember the

banks have more reserves than they need. Reserves are still quite abundant. So

the question is how much of that amount is actually going to be needed in the

end after, you know, after the firms adjust to our very gradual decrease?  So

our understanding of the distribution of reserves and how much will be needed

has moved up over the past year. 

     Then there would be a buffer on top of that. And then we would want to be

-- we'd want to have a BEFR as I mentioned in my remarks, because we want to be

operating in abundant reserve regime where we operate through administered

rates. If you operate too close to that point of scarcity you wind up having to

have big ongoing interventions in the market.  We don't want the fed to have a

large ongoing presence in the market around this. We'd rather just in managing

the federal funds rate we'd rather have it set by our administered rates. That

implies you want to be a bit above what that equilibrium demand is.

     There's no playbook. No one really knows. The only way you can figure it

out is by surveying people and market intelligence and by approaching that point

quite carefully.

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

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