Jerome Powell testifies before US House banking committee

US Federal Reserve chair, Jerome Powell, testified before the US House Financial Services Committee about the Fed's balance sheet and US debt. His testimony mirrored his comments before the US Senate a day earlier.

Powell says balance sheet agreement coming soon

Powell told the House in his semiannual address that the Federal Reserve could reach a decision soon on the end of its balance sheet reduction. The Fed’s balance sheet is a list of the US central bank’s assets and liabilities. The head of the US central bank said that the Fed will decrease the amount of bond reduction on its balance sheet.

The bonds were purchased during the US financial crisis of 2008 in order to stimulate the economy. Most of the $4 trillion balance sheet is dominated by mortgage-backed securities bought by the Fed to lower long-term interest rates.

The bank is letting $50 billion of bonds roll off every month to diminish the bond holdings. Powell told the House that there is a deadline in place to conclude the balance sheet reduction by the end of 2019.

‘We’ve worked out the framework of a plan, that we hope to be able to announce soon, that will light the way all the way to the end of balance sheet normalization and that will result in the end of asset runoff sometime later this year,’ said Powell.

Powell talks about US debt ceiling

In addition to the Fed’s balance sheet, Powell said it’s important for the US to raise its debt limit. There is a debate in Congress about whether to increase the amount of government debt. He said that Congress should raise the debt ceiling.

‘It’s beyond even consideration. The idea that the US would not honor all of its obligations and pay them when due is something that can’t even be considered,’ said Powell.

While Powell wants to raise the debt ceiling, the Fed chair doesn’t want the US to get so deep in debt that the nation defaults on its loans.

‘I think it would be a very big deal not to pay all of our bills when and as due. That’s something I think the US government should always do,’ said Powell.