Powell Says Fed 'On Track' to Return to Smaller Balance Sheet

The video discusses the Federal Reserve's approach to managing economic expansion by balancing interest rates. It highlights the risks of keeping rates too low or raising them too soon. The Fed's strategy involves gradually increasing rates and reducing the balance sheet by not replacing maturing securities. The plan aims to normalize the balance sheet size without causing adverse market reactions. The future size of the balance sheet will depend on public demand for currency and reserves.

What is one potential consequence of keeping interest rates too low for an extended period?

• Decreased consumer spending

• Higher savings rates

• Economic imbalances

• Increased unemployment

Why is it important to avoid raising interest rates too soon?

• It can increase government debt

• It can prematurely end an economic expansion

• It can cause a stock market crash

• It can lead to deflation

What is the Federal Reserve's approach to reducing the balance sheet?

• Selling securities in the open market

• Not replacing maturing securities

• Increasing interest rates rapidly

• Buying more securities

What was a concern when announcing the balance sheet reduction plan?

• Increased unemployment

• Higher interest rates

• Decreased inflation

• Strong market reactions

What factor will influence the equilibrium size of the balance sheet in the long run?

• Stock market performance

• International trade balance

• Public demand for currency and reserves

• Government spending