Powell Says Fed May Stop Shrinking Balance Sheet in Months Ahead

Federal Reserve Chair Jerome Powell signaled the central bank may stop shrinking its balance sheet in the coming months, an important shift necessary to preserve liquidity in overnight funding markets.

The Fed chair also indicated labor-market prospects continue to worsen, a message that supports investors’ expectations for another interest-rate cut this month.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said Tuesday in remarks prepared for an event with the National Association for Business Economics in Philadelphia.

Chairman of the US Federal Reserve Jerome Powell

Photographer: Sophie Park/Bloomberg

“We may approach that point in ...