Federal Reserve Chairman Jerome Powell told U.S. lawmakers that the central bank plans soon to reconsider its years-long effort to shrink its $4 trillion balance sheet, given recent "crosscurrents" in markets and the global economy.
The Fed has been shrinking the balance sheet since 2017, after swelling total assets from around $900 billion in the wake of the 2008 financial crisis. Shrinking the balance sheet was a part of monetary policy "normalization," essentially an effort to tighten financial conditions to keep the economy from overheating.
But concern that the Fed was tightening monetary policy too quickly sent stocks plunging in December, and the Fed changed course in a shift that Bank of America economists described as a "90-degree turn."
"Over the past few months we have seen some crosscurrents and conflicting signals," Powell said in prepared remarks released by the Fed ahead of the Powell's testimony Tuesday. "Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year."
Powell also cited the risk of slowing growth in "some major foreign economies, particularly China and Europe" and the ongoing uncertainty around President Donald Trump's trade battles with China and Britain's exit from the European Union.