The Federal Reserve is slowing its balance sheet drawdown due to internal opposition

From Yahoo Finance: 2025-04-09 14:04:00

The Federal Reserve decided to significantly slow its balance sheet drawdown, with more internal opposition than initially understood. A New York Fed official made the case for the slowdown due to uncertainty over the federal debt ceiling. The Fed will lower the cap on Treasury securities runoff from $25 billion to $5 billion while maintaining the $35 billion cap on mortgage bonds. This move, known as quantitative tightening, is seen as a way to navigate money market uncertainty due to government cash management issues. Fed Governor Christopher Waller and other officials had concerns about the slowdown, wanting to press forward on QT and use liquidity tools to address market volatility. The Fed’s goal with QT is to maintain control over short-term interest rate volatility and the federal funds rate, but the debt ceiling issue could obscure signals from the market. The Fed is likely to continue the extended slowdown of QT, viewing it as a gradual approach to ending the process. New York Fed President John Williams sees value in collecting data and avoiding disruptions with the slower pace. The Fed’s balance sheet drawdown has reduced holdings from $9 trillion to $6.8 trillion, with uncertainty on how far QT can go. Trade tensions and market stress may lead to more rate cuts, potentially impacting the Fed’s holdings and signaling a return to large-scale bond buying.



Read more at Yahoo Finance: Fed minutes show some officials favored steady balance sheet drawdown