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Powell says the Fed will start expanding its balance sheet (balance sheet to da moon!)

The Federal Reserve will soon start growing its balance sheet again, a response in part to the jolt to overnight lending markets in September, Chairman Jerome Powell said Tuesday.

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.

"This is not QE. In no sense is this QE," he said in a question and answer session after the speech.

On monetary policy more broadly, Powell stuck to his recent script: He and his fellow policymakers view the economy as being strong but susceptible to shocks, particularly from a global slowdown, trade and geopolitics like a potentially messy Brexit. He said the Fed stands committed to supporting the recovery but is data dependent and not on a preset course of cutting rates.

The Fed has reduced its benchmark rate twice in 2019 and is expected to approve a third cut late this month.

Stocks pared some of their losses as Powell spoke while short-term Treasury yields hit their lows of the day.

Time to expand 'is now upon us'

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.

Since then, the Fed has been conducting temporary operations in which it is providing cash in exchange for ultra-safe assets.

Powell said the Fed is about to embark on more permanent operations to make sure the system h...

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