Overview

• 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.