From Yahoo Finance: 2025-03-19 14:07:00

The Federal Reserve announced a slowdown in its balance sheet drawdown starting next month, reducing the monthly cap of Treasuries allowed to mature to $5 billion from $25 billion. Fed Chair Jerome Powell indicated the change would not be temporary and would lead to a smoother end to quantitative tightening (QT). Some analysts view this as a soft stop to QT.

The QT process has helped the Fed shed over $2 trillion from its balance sheet since 2022. The latest change in QT is influenced by the debt ceiling issue, with the Treasury using cash to pay bills, adding liquidity to the system. Pausing QT now could allow the Fed to manage the process more smoothly and potentially go farther with the drawdown.

Fed officials are in favor of the reduced pace in QT, which focuses on Treasuries. The shift may extend how long the central bank can run QT before needing to stop, according to Powell. The Fed has struggled to reach the cap for mortgage-backed securities due to slow mortgage creation and light refinancing activity. Powell noted that the Fed may slow the drawdown pace for mortgage bonds in the future.

Read more: Fed says it will slow balance sheet runoff process