Fed's Powell: Could Finalize Balance Sheet Plan In May

Federal Reserve policymakers have made "excellent progress" on their plan for reducing the central bank's nearly $9 trillion balance sheet, and could finalize details at their next policy meeting in May, Fed Chair Jerome Powell said on Wednesday.

Overall, he said, the plan will look "familiar" to when the Fed last reduced bond holdings between 2017 and 2019, "but it will be faster than the last time, and of course it's much sooner in the cycle than last time."

The Fed will provide more details on the plan's parameters when it releases minutes of Wednesday's policy meeting in three weeks' time, he said.

The U.S. central bank's balance sheet more than doubled during the pandemic as it scooped up trillions of dollars in Treasuries and mortgage-backed securities, first to calm markets and then to support the economy.

It ended those bond purchases this month. Shrinking the portfolio will help tighten monetary policy and financial conditions, complementing the Fed's move to higher interest rates to bring inflation back under control, Powell said.

Earlier this year the Fed said balance sheet reductions would generally happen not through outright sales of bonds but by allowing securities to roll off as they mature. Investors expect the Fed to set monthly caps to control the reduction and make it predictable.

"We'll be mindful of the broader financial context when we make the decision on timing" of reductions, Powell said. "We always want to use our tools to support macroeconomic and financial stability, and we want to avoid adding uncertainty in a highly uncertain situation already."