Fed's Powell suggests tightening program could end soon, opens door to rate cuts

Federal Reserve Chair Jerome Powell on Tuesday suggested the central bank is nearing a point where it will stop reducing the size of its bond holdings, and provided a few hints that more interest rate cuts are in the cards.

Speaking to the National Association for Business Economics conference in Philadelphia, Powell delivered a dissertation on where the Fed stands with “quantitative tightening,” or the effort to reduce the more than $6 trillion of securities it holds on its balance sheet.

While he offered no specific date of when the program will cease, he said there are indications the Fed is nearing its goal of “ample” reserves available for banks.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in prepared remarks. “We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”

On interest rates, the central bank chief did not provide specific guidance on a path lower, but comments about weakness in the labor market indicated that easing is firmly on the table, as financial markets expect.

“If we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it. If we move too slowly, there may be unnecessary losses, painful losses, in the employment market. So we're in the difficult situation of balancing those two things,” he said.

“The data we got right after the July meeting showed that ... that the labor market has actually softened pretty considerably, and puts us in a situation where the two risks are closer to being in balance,” Powell added.

Other Fed officials have said recently that the falling labor market is taking precedence in their thinking, leading to the likelihood of additional rate cuts ahead.