The Federal Reserve’s balance sheet drawdown is once again in flux, with analysts now seeing a good chance the central bank may slow further or pause the effort at this week’s policy meeting. The Fed’s quantitative tightening (QT) program has been underway for over two years and has sparked concerns among policymakers about its impact on money markets.
The uncertainty surrounding QT stems from the federal debt ceiling and the Treasury Department’s efforts to manage government finances. With the current borrowing limit in place, the Treasury is drawing down its account at the Fed, adding liquidity to the financial system. When the cap is eventually lifted, it will rebuild this account, sucking that liquidity back out.
The Fed has not offered much guidance on QT, but some policymakers have expressed openness to a slowdown or pause. Cleveland Fed President Beth Hammack said her preference would be for QT to continue at its current pace, while Dallas Fed President Lorie Logan suggested an openness to a slowdown.
Analysts are divided on the issue, with some forecasting a pause in April and others predicting that QT will likely resume once the debt ceiling is resolved and liquidity normalizes. The expectation of a pause has led some banks and researchers to expect that the Fed may slow further or pause QT at this week’s meeting.
Source: https://www.reuters.com/markets/us/fed-watchers-see-good-chance-change-balance-sheet-drawdown-2025-03-18