WASHINGTON, July 10 (Reuters) - The Federal Reserve has "quite a ways to go" in trimming the size of its balance sheet with the endpoint of quantitative tightening still uncertain, Fed Chair Jerome Powell told the House Financial Services Committee on Wednesday.
The Fed has trimmed the size of its holding by about $1.7 trillion dollars already, Powell said, but will edge its way carefully to a stopping point in order to make sure financial institutions have access to adequate reserves.
"We have made quite a lot of progress," Powell said, but "we feel we have quite a ways to go."
The Fed bulked up its balance sheet in response to the COVID-19 pandemic to help suppress long-term interest rates and support the economy. It is currently letting as much as $25 billion per month of its holdings of U.S. Treasuries and $35 billion of mortgage backed securities expire as they mature.
It was Powell's second day of testimony before the U.S. Congress, a semiannual exercise that includes a review of economic conditions and monetary policy and, typically, a grilling by lawmakers about regulatory and other issues as well.
Powell's comments to the Senate Banking Committee on Tuesday showed both increased faith in a continued decline in inflation and a growing sensitivity about the risk of keeping monetary policy too tight for too long and slowing the economy more than necessary.
The U.S. unemployment rate is now 4.1%, a number Powell considers low by historical standards but which has been rising incrementally for a year. It is also above the level many economists and Fed officials feel represents sustainable full employment.
Powell told Senators that "more good data" would build the case for the U.S. central bank to lower its benchmark interest rate from the 5.25% to 5.5% rate set in July of 2023. (Reporting by Howard Schneider; Editing by Andrea Ricci)
