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In This List

Powell: Fed to grow balance sheet 'soon,' but purchases will not be QE

Financial Plumbing Prone To Clogging Amid Bank Liquidity Trap

New York Fed Increases Planned Repo Purchases Amid Quarter-End Demand For Cash

Fed Poised To Relax Key Rules For Large Banks

FOMC Minutes Give Few Clues On Next Rate Cut, Flag 'Clearer' Downside Risks


Powell: Fed to grow balance sheet 'soon,' but purchases will not be QE

The Federal Reserve will soon announce a plan to buy Treasury securities to alleviate volatility in short-term money markets, Fed Chairman Jerome Powell said Oct. 8.

But the gradual purchases will not amount to another round of the Fed's postcrisis quantitative easing. Rather, they are aimed at ensuring adequate liquidity in the financial system, Powell said at an event in Denver.

"I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis," Powell said in prepared remarks at a National Association for Business Economics conference. "Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy."

Powell emphasized that point during a Q&A session after his speech, starting an answer on the issue by saying, "In no sense is this QE," and ending his response with: "Not QE, did I mention that?"

The Fed's impending asset purchases follow recent volatility in short-term money markets, where rates spiked in mid-September partly due to a corporate tax payment deadline and a larger-than-usual issuance of Treasury securities. Both of those developments led to a reduction in bank reserves, as money flowed to the Treasury Department, causing a liquidity crunch.

Bank reserves were already declining prior to the crunch due to the Fed's earlier efforts to slim its balance sheet, which had peaked at $4.5 trillion following the Fed's postcrisis QE purchases but had fallen to less than $3.8 trillion in early September.

The Fed's new asset purchases will be aimed at adding "enough reserves back in" to ensure that the financial system has sufficient liquidity to handle temporary cash crunches, Powell said.

Fed officials have said for months that they would have to begin growing the Fed balance sheet at some point to ensure there are enough reserves in the system, Powell noted.

"That time is now upon us," he added.

Powell did not provide specifics on the amount of reserves the Fed is looking to add to the banking system, saying officials are still working on specifics and will announce their plan when it is ready. The Fed has been making temporary open-market purchases since mid-September to ease liquidity pressures, and the Fed "will not hesitate" to continue those purchases as needed.

The Fed chief also provided little guidance on whether the rate-setting Federal Open Market Committee will cut its benchmark interest rate when it meets again Oct. 29-30, as many investors expect. The rate cut would be the Fed's third of the year.

The Fed's actions this year are "providing support" to the economic outlook, but Fed policy is "not on a preset course," he said.

"The next FOMC meeting is several weeks away, and we will be carefully monitoring incoming information," he said. "We will be data-dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis."

At a separate event, Chicago Fed President Charles Evans said he "wouldn't mind another cut" but is open-minded either way, according to Reuters. Evans is a voter this year on the FOMC, and he supported the Fed's rate cuts in July and September.