Fed Chairman Powell faces a $4 trillion question

via Reuters:

Federal Reserve Chairman Jerome Powell has a problem: how to explain that the Fed may soon begin to taper its ongoing asset-shedding operation without looking like he’s hunkering down for a coming recession, or caving to U.S. President Donald Trump.

Not long ago, Powell expected to face this delicate communication test some time later in 2019, rather than at his news conference on Wednesday following the close of the Fed’s first policy meeting of the year.

But three things – an unexpected scarcity of reserves deep in the plumbing of Wall Street, overt public pressure from investors and the White House, and the Fed’s own decision to rethink its interest-rate hikes – are forcing the U.S. central bank to acknowledge the real possibility of hanging on to more bonds than originally planned.

“You cannot stop the rate-hiking cycle without communicating on the balance sheet as well,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management, in Geneva, Switzerland.

 

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