The central bank has been saying for months that it will eventually need to expand its holdings again to keep an ample supply of banking reserves — currency deposits at the Fed — in the financial system.

“That time is now upon us,” Mr. Powell said. He added that the Fed “will soon announce measures to add to the supply of reserves over time.”

Last month, an obscure but important corner of financial markets — overnight repurchase agreements made between banks and other financial institutions — saw a spike in interest rates that spilled into other money market rates. It even briefly pushed the federal funds rate, the Fed’s main policy tool, above its range.

The episode prompted the Federal Reserve Bank of New York to jump into the market to smooth things over for the first time since the financial crisis. Many market observers have said that might not have been necessary had the central bank kept a bigger balance sheet. By shrinking its asset holdings, the Fed also drained bank reserves from the financial system.

While several factors could have contributed to the episode, “it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressures can lead to outsized movements in money market interest rates,” Mr. Powell said in his remarks.