Jerome Powell on Tariffs' Impact on Inflation and Balance Sheet Decisions

Tariffs and Inflation Forecasts

• 💡 Victoria Guida of Politico inquired about the specific impact of tariffs on the inflation forecast.
• 📌 Powell confirmed that tariffs are a known factor contributing to core PCE and CPI inflation this year, as acknowledged by all forecasters.
• ⚠️ While the exact contribution of tariffs is not precisely quantified, it is understood to be a component of the current inflation outlook.

Balance Sheet and Quantitative Tightening (QT)

• 🏦 The decision to adjust the balance sheet was influenced by flows in and out of the TGA (Treasury General Account).
• 📉 The Federal Reserve decided to lower the pace of Quantitative Tightening (QT), effectively cutting it in half.
• ⏳ This reduction in the pace means the process will be slower for longer, extending the runway for balance sheet reduction.
• 📊 Reserves are still considered abundant, though some indicators are beginning to react; the emptying TGA currently increases reserves, obscuring underlying signals.

Implications of Balance Sheet Adjustments

• 🚫 Powell emphasized that these balance sheet adjustments have no implications for monetary policy or the ultimate size of the balance sheet.
• 🚫 The move is not intended to send any hidden signals and is consistent with previously published plans and practices.
• ✅ The strategy aligns with the successful rundown of the balance sheet, with the intention to stop when reserves are somewhat above the ample level, which has not yet been reached.