Fed's Powell: "Balance Sheet Reduction to Be Announced at Next Meeting... Will Accelerate Tightening Pace if Necessary"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated that he expects to announce the start of balance sheet reduction at the upcoming Federal Open Market Committee (FOMC) regular meeting. He also confirmed that if a more aggressive monetary tightening is necessary, the plan could be accelerated.

Chairman Powell attended a press conference on the 16th (local time) after deciding on an interest rate hike at the March FOMC regular meeting for the first time in 3 years and 3 months, saying, "We expect to announce the start of balance sheet reduction at the next meeting."

He added, "When making decisions related to interest rates and the balance sheet, we pay attention to the broader context of the market and the economy," and "We will use our tools to support financial market and macroeconomic stability."

Along with this, Chairman Powell mentioned that "it appears to take longer than previously expected for inflation to return to the 2% target range," indicating that inflation risks are more serious than anticipated.

When asked what factors determine the pace of the Fed's rate hikes, he replied, "If more aggressive monetary tightening is needed, the Fed can accelerate the plan," and "Every meeting is real-time."

He also assessed that the impact of Russia's invasion of Ukraine on the U.S. economy is "very uncertain."

However, Chairman Powell said that the likelihood of a recession next year has "not particularly increased," and "All signs show that the U.S. economic growth remains strong."

Following the FOMC regular meeting, the Fed announced in a statement that it would raise the federal funds rate by 0.25 percentage points from the previous 0.00-0.25% range to 0.25-0.50%. This is the first rate hike by the Fed in 3 years and 3 months since December 2018.

Additionally, through the dot plot, the Fed projected the year-end interest rate to be 1.9%, implying six additional 0.25 percentage point hikes in the remaining FOMC meetings. It also anticipated the possibility of three rate hikes next year.