Bank of America, JPMorgan Predict Fed Ending Quantitative Tightening Next Week

Strategists at JPMorgan and Bank of America now anticipate that the Federal Reserve will halt its quantitative tightening (QT) process this month, ending the reduction of its approximately $6.6 trillion balance sheet, which has been aimed at withdrawing liquidity from financial markets. This shift is driven by rising borrowing costs in dollar funding markets and a decline in bank reserves below the $3 trillion threshold, signaling that reserves are no longer ample to maintain market stability. Fed Chair Jerome Powell has indicated that the balance sheet runoff will stop when reserves reach a level just above what is considered necessary to prevent market volatility, a point expected to be approached soon. The cessation of QT is expected to ease funding pressures, potentially lowering Treasury yields and supporting risk assets, with the Fed also likely to cut policy rates further to between 3.75% and 4%. While some analysts expect the QT end as early as October, others see it happening later, reflecting ongoing uncertainty. Additionally, the government shutdown is limiting the Fed's access to economic data, complicating policy decisions amid these shifts.