Federal Reserve Slows Balance Sheet Reduction Due to Debt Limit Concerns

Fed policymakers reduce Treasury runoff cap to $5 billion per month starting April, drawing dissent from Governor Christopher Waller.

The Federal Reserve has decided to slow the pace of its balance sheet reduction, lowering the monthly cap on Treasury runoff from $25 billion to $5 billion, effective April 2025.
This decision reflects concerns over potential market disruptions linked to uncertainty surrounding the U.S. government's borrowing limit.
Governor Christopher Waller dissented, arguing that current reserve levels, exceeding $3 trillion, remain abundant and do not justify slowing the runoff.
Waller advocated for maintaining the current pace of reduction while developing contingency plans to address potential short-term strains in the banking system.
Fed Chair Jerome Powell stated that the slowdown was supported by most policymakers and would enable a smoother and longer normalization process.