Boston Fed President Eric Rosengren defended against claims that Fed’s balance sheet run-off caused financial markets turbulence during last Q4. He said, “concerns about the international economy, potential trade disputes, and a U.S. government shutdown are much more plausible explanations”. Rosengren pointed out that the balance reduction is “still quite gradual”. Meanwhile, equity markets experienced a “substantial recovery” in the first two months this year, even though the runoff was “slightly faster” than in Q4.

Also, as Fed purchased long-term securities, it encouraged investors to “big up” the price and lower rates on other higher-duration securities. Thus, there was spillover to a wide array of other asset prices. With “quantitative tightening”, Treasury yields and term premia would move higher. But back in December, treasury rate indeed feel and term premium remained quit low. That shouldn’t be the reaction to the balance sheet runoff.

Looking forward, Rosengren said it’s “unrealistic to expect the Federal Reserve’s balance sheet to return to the size it was before the financial crisis”. Meanwhile, in a hypothetical next recession, central banks will have little room to reduce short-term rates. Thus, there will be increased need to utilize the balance sheet as stimulative tool of monetary policy.

Full speech here.

Philadelphia Fed President Patrick Harker said in a speech in London that “potential risks tilt very slightly to the downside” in the US. Though he emphasized the work “slight” as he saw “outlook as positive” and economy “continues to grow” and is on pace to the the longest economic expansion in history.

Harker added there was “continued strength” in the labor market. He’d “cautious against” getting caught up in a single data point in February’s dismal job data. Meanwhile, inflation is running around 2% target and “does not appear to be on a strong upward trajectory”. Rather inflation is “edging slightly downward”.

Combining all, Harker stays in “wait-and-see mode”. He expects “at most, on rate hike this year, and one in 2020”. But his stance will be “guided by data”.

Harker’s full speech here.

More from Chicago Fed President Charles Events. He warned that “at the moment, the risks from the downside scenarios loom larger than those from the upside ones”. And, “if activity softens more than expected or if inflation and inflation expectations run too low, then policy may have to be left on hold — or perhaps even loosened — to provide the appropriate accommodation to obtain our objectives.”

On the other hand, “if growth runs close to its potential and inflation builds momentum, then some further rate increases may be appropriate over time to ensure that the economy settles in on its long-run sustainable growth path and that inflation runs symmetrically about our 2 percent target”. He added “in this scenario, the path for rates will depend crucially on any signals of an acceleration in core inflation.”

Though, he emphasized that US economy is still in good shape. He pointed to Fed’s forecasts of 1.75-2.0% GDP growth in 2019. Evans said “the lower end of this range is actually in line with my view of the economy’s long-run growth potential. So we’re not looking at a bad number.” Though, “:the economy won’t feel like it is doing very well compared with last year’s very strong performance.”

Chicago Fed President Charles Evans said at a conference in Hong Kong that he now doesn’t expect a rate hike until second half of next year. He noted the US economy is in a strong position. Fed funds rate is seen as close to neutral. And it’s good time to pause and be cautious. Yet, that’s a rather abrupt turn as just back in January, he expected Fed could hike as many as three times this year, assuming the economy remains reasonably strong.

Evans described the inversion of 3-month to 10-year yield curve as “pretty narrow”. But he also noted that there’s be a “secular decline” in long term interest rates. Some of his is “structural” having to do with “lower trend growth, lower real interest rates.” Hence, “in that environment, it’s probably more natural that yield curves are somewhat flatter than they have been historically.”