• Federal Reserve Chair Jerome Powell asserts quantitative easing remained within central bank's authority
  • Comments come as Fed continues quantitative tightening, with balance sheet reduction expected to end in first half of 2025
  • Political scrutiny of Fed's unconventional policy tools intensifies amid ongoing inflation fight

Powell's Mandate Defense

Federal Reserve Chair Jerome Powell has pushed back against criticism of the central bank's pandemic-era quantitative easing program, stating the controversial policy "wasn't beyond the confines of our mandate." The remarks come as the Fed continues its current quantitative tightening phase, with officials signaling the balance sheet reduction could conclude by mid-2025.

"We've always been clear that our tools must serve our statutory goals of maximum employment and price stability," Powell said during a recent policy discussion, according to people familiar with his comments. The Fed chair's defense follows increasing political pressure, including legislation from Senator Rick Scott seeking greater accountability for the central bank's balance sheet operations.

Policy Transition Underway

The Fed has maintained its benchmark rate at 4.25%-4.50% after three consecutive cuts in late 2024, while continuing to shrink its $7.4 trillion balance sheet. Market participants expect the quantitative tightening program to wind down once reverse repo facility balances approach zero, potentially as early as June.

"The Fed is threading a needle here," said a senior fixed income strategist at a major Wall Street firm who asked not to be named. "They need to maintain ample reserves while normalizing policy, and Powell's comments suggest they view QE as having been necessary rather than discretionary."

Economic Crosscurrents

Recent data shows inflation moderating but still above the Fed's 2% target, with the labor market showing signs of stabilization after cooling through much of 2024. GDP growth has remained resilient, supported by consumer spending, though business investment has shown more variability.

Fed officials declined to comment on whether Powell's remarks signaled any shift in thinking about future use of quantitative easing. The central bank's next policy meeting in June could provide more clarity on both the timing of QT's conclusion and any potential rate adjustments.

Correction: An earlier version misstated the current Fed funds target range. It is 4.25%-4.50%.