Federal Reserve Chairman Jerome Powell said Friday that the central bank "wouldn't hesitate" to adjust how quickly it lets its balance sheet shrink if it starts to cause problems in financial markets.
"We don't believe that our issuance is an important part of the story of the market turbulence that began in the fourth quarter of last year. But, I'll say again, if we reached a different conclusion, we wouldn't hesitate to make a change," he said. "If we came to the view that the balance sheet normalization plan — or any other aspect of normalization — was part of the problem, we wouldn't hesitate to make a change."
Powell spoke Friday at the American Economic Association and Allied Social Science Association annual meeting in Atlanta. He also said that the Fed "will be patient" with monetary policy as it watches how the U.S. economy performs.
The Fed currently is allowing $50 billion each month to run off the balance sheet, which is largely a portfolio of bonds the central bank purchased to stimulate the economy during and after the financial crisis. Last month, Powell said at a news conference that the reduction program will continue ahead as planned.
Market participants pointed to Powell's December comments on the pace of balance sheet reduction for a renewed round of anxiety in the stock market. Some believe that the Fed program is removing liquidity from the market and that could indirectly impact stocks as the European Central Bank also ends its asset purchases.
After Powell's news conference last month, the Dow Jones Industrial Average closed 1.5 percent lower at 23,323, and the S&P 500 was also off 1.5 percent at 2,506. The balance sheet reduction began in October 2017 and followed three rounds of quantitative easing — a process in which the Fed bought U.S. debt and mortgage-backed securities in an effort to keep borrowing costs low.
The Fed chief's Friday comments come as financial markets have fallen sharply, with some experts pointing to worries about a potential monetary policy error by the Fed as one of the catalysts for the decline.
The Dow and S&P 500 posted their worst December performance since 1931 last month, falling about 9 percent each. The S&P 500 also notched its biggest annual loss since the financial crisis, dropping more than 6 percent.