Fed Slows Balance Sheet Reduction Amid Debt Talks

The Federal Reserve announced it will slow the pace of its balance sheet reduction starting April 1, amidst ongoing economic uncertainty and a pending federal debt ceiling agreement. The cap on Treasuries allowed to mature without reinvestment will be reduced from $25 billion to $5 billion, while the cap on mortgage-backed securities remains at $35 billion. This decision, part of the Fed's quantitative tightening strategy, reflects adjustments to its $6.8 trillion asset holdings, which were accumulated during past stimulus efforts, including the COVID-19 pandemic. Some Wall Street analysts, such as those from Barclays and Bank of America, are adjusting their forecasts for the duration of the Fed's runoff. Fed Governor Christopher Waller opposed the policy change, preferring the existing rate of balance sheet reduction. The financial markets are closely monitoring these changes alongside interest rate policies.