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Speech

October 14, 2025

Understanding the Fed’s Balance Sheet

Chair Jerome H. Powell

At the 67th Annual Meeting of the National Association for Business Economics, Philadelphia, Pennsylvania

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Thank you, Emily. And thank you to the National Association for Business Economics for the Adam Smith Award. It is an honor just to be mentioned alongside past recipients, including my predecessors Janet Yellen and Ben Bernanke. Thank you for this recognition and for the opportunity to speak with you today.

Monetary policy is more effective when the public understands what the Federal Reserve does and why. With that in mind, I hope to enhance understanding of one of the more arcane and technical aspects of monetary policy: the Federal Reserve's balance sheet. A colleague recently compared this topic to a trip to the dentist, but that comparison may be unfair—to dentists.1

Today, I will discuss the essential role our balance sheet played during the pandemic, along with some lessons learned. I will then review our ample reserves implementation framework and the progress we have made toward normalizing the size of our balance sheet. I will conclude with some brief remarks on the economic outlook.

Background on the Fed's Balance Sheet

One of the primary purposes of a central bank is to provide the monetary foundation for the financial system and the broader economy. This foundation is made of central bank liabilities. On the Fed's balance sheet, the liability side of the ledger totaled $6.5 trillion as of October 8, and three categories account for roughly 95 percent of that total.2 First, Federal Reserve notes—that is, physical currency—totaled $2.4 trillion. Second, reserves—funds held by depository institutions at the Federal Reserve Banks—totaled $3.0 trillion. These deposits allow commercial banks to make and receive payments and meet regulatory requirements. Reserves are the safest and most liquid asset in the financial system,