In front of the House Panel, Jerome Powell confirms the Fed's plan to gradually raise interest rates

Rep. Jeb Hensarling

(R., Texas), the chairman of the committee, began by expressing his skepticism at the suggestions of some Fed officials that they could stop reducing the central bank's $ 4.3 trillion in bonds and other assets, sometimes called balance sheets. 19659003] Fed officials said last year that they wanted the process to go quietly in the background and that it should be boring – the equivalent of "looking at the dry paint. "

"We are facing the prospect Hensarling said on Wednesday." A balance sheet that may never come back to a more normal size "would be" problematic, "he said.

The balance sheet has grown significantly after the financial crisis, reaching nearly $ 4.5 trillion, less than $ 1 trillion When the Fed bought bonds to lower long-term interest rates and drive up asset prices, purchases left many investors and lawmakers nervous because the consequences of the experiment were unknown.

creating turbulence in the markets. "This process went off smoothly," said Mr. Powell Wednesday in his testimony, which did not specifically address the concerns raised by Mr. Hensarling about the final size of the wallet.

When the authorities agreed last year they did not say how much of it would last, leaving the impression that it could last several years

But the recent evolution of the short-term money markets raises the question of "how long do we actually want our balance sheet [wind-down] to go ", President of the Boston Fed

Eric Rosengren

said in an interview last month. It's possible the portfolio will not shrink "considerably more" by its $ 4.3 trillion in June, he says.

Some Republican members of the House have criticized the Fed in recent years for the use of other central bank to raise interest rates in the short term while maintaining the portfolio much more important of bonds and other assets.

Powell offered a pre-emptive defense of these tools in a 63-page report issued before the hearings.

Mr. Powell's two hours of testimony before the Senate Banking Committee on Tuesday revealed some uneasiness among legislators on both sides with the president's leadership

Donald Trump

Powell said on Tuesday that the Fed had plans to continue to gradually raise rates, and he said it was too early to say whether trade disputes could interfere with these plans. He said that the central bank's rate-fixing committee "believes that, for the moment, the best way to do so is to continue to gradually raise" its short-term benchmark rate,

. statement was new, pointing out that policy decisions are not about autopilot. The expression also indicates less certainty about the rate trajectory as the Fed raises its benchmark rate to a so-called neutral level that neither stimulates nor slows growth.

The Fed raised this rate in June by a quarter point of 1.75% and 2%, the second increase this year. Most Fed officials have written at least four rate increases this year and three more next year.

Most of them expect to have to raise the rate to a neutral level, which could be reached next year.

The Fed expects recent tax cuts and an increase in federal spending to boost spending and investment at a time when the job market is already tense. This has put authorities on the lookout for signs of overheating the economy

The intensification of trade disputes could hurt corporate confidence and fragile financial markets if US companies face at higher prices or disruption of the supply chain. Write to Nick Timiraos at [email protected]