Fed Chair Powell on Differing Views for December FOMC Meeting and Balance Sheet Normalization

Dual Mandate and Economic Risks

• 🎯 The Federal Reserve faces a challenging situation with upside risks to inflation and downside risks to employment.
• ⚖️ Policy decisions must balance the dual mandate of maximum employment and stable prices, with a recent shift towards a more neutral policy stance due to increased downside risks to employment.
• 📊 The committee acknowledges two-sided risks and bases policy decisions on incoming data, evolving outlook, and risk balance.

December FOMC Meeting Outlook

• 🗣️ There were strongly differing views within the committee regarding the path forward for the December meeting.
• ⚠️ A further reduction in the policy rate in December is not a foregone conclusion, emphasizing that policy is not on a preset course.

Balance Sheet Normalization

• 🛑 The Fed decided to conclude the reduction of its aggregate securities holdings as of December 1, reaching the standard of ample reserve conditions.
• 📈 Indicators such as repo rates moving up relative to administered rates and increased use of the standing repo facility signal this readiness.
• 📉 Over three and a half years, the Fed's securities holdings have declined by $2.2 trillion, falling from 35% to about 21% of nominal GDP.

Future Balance Sheet Strategy

• 🔄 In December, the Fed will enter a new phase by holding the balance sheet size steady while reserves continue to decrease.
• 🏦 The Fed will reinvest proceeds from maturing agency securities into Treasury bills to shift the portfolio towards primarily Treasury securities and normalize its composition.

Commitment to Goals

• ✅ The Fed remains committed to supporting maximum employment and bringing inflation sustainably to the 2% goal.
• 🌍 Actions are taken in service of the public mission, understanding their impact on communities, families, and businesses across the country.