On monetary policy more broadly, Powell stuck to his recent script, saying the Fed stands committed to supporting the recovery but is data dependent and not on a preset course of cutting rates.
Trouble in overnight lending markets several weeks ago helped spur the the Fed into action.
How the Fed will go about expanding the securities it holds will be explained in the coming days, though Treasury bill purchases will be involved, the central bank chief said during a speech in Denver, though Powell stressed the approach shouldn't be confused with the quantitative easing done during and after the financial crisis.
On the balance sheet issue, overnight repurchase markets malfunctioned in several weeks ago, due in part to funding constraints caused by money getting sucked out of the system as companies made tax payments and the Treasury Department settled bond auctions. The lack of funding caused repo rates to spike as high as 10% and the Fed's benchmark funds rate, which banks charge each other for short-term borrowing, to go above its targeted range by 5 basis points.
"This volatility can impede the effective implementation of monetary policy, and we are addressing it," Powell said in prepared remarks. "Indeed, my colleagues and I will soon announce measures to add to the supply of reserves over time." Powell said the Fed is settling into an "ample reserves" regime and now sees that it is around the level banks need.
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