Wall Street extends Fed balance sheet wind-down timeline

Financial market participants have extended the timeline for the Federal Reserve’s balance sheet reduction, now expected to end in February at $6.2 trillion. The Fed’s quantitative tightening program, aimed at normalizing monetary policy, has decreased holdings from $9 trillion to $6.7 trillion. Uncertainty remains around when and at what level the process will conclude.

Market expectations for the Fed to halt quantitative tightening this year were delayed due to Treasury Department actions addressing government financing needs. The recent budget bill passage lifted the borrowing cap, allowing increased debt sales that will impact the Fed’s reserve levels. Reserves currently sit at $3.3 trillion, projected to dip to $2.9 trillion due to quantitative tightening.

The Federal Reserve’s minutes revealed market participants anticipating reserves to decrease to $2.9 trillion and the Fed’s reverse repo facility, currently at $227 billion, to reach a “low” level. The central bank’s efforts to shrink holdings through quantitative tightening have faced delays, with the balance sheet reduction now expected to halt in February at $6.2 trillion.

Read more at Yahoo Finance: Wall Street pushes out end of Fed balance sheet wind-down, minutes show