Fed's Powell says end of balance sheet drawdown may be nearing

Core Viewpoint - The Federal Reserve may soon conclude its quantitative tightening (QT) efforts, which have been in place since 2022, as liquidity conditions in the financial system are being closely monitored [1][2]. Group 1: Quantitative Tightening (QT) Overview - QT aims to reduce the excessive liquidity added during the COVID-19 pandemic, with large-scale purchases of Treasury and mortgage bonds previously stabilizing markets [4]. - The Fed's balance sheet has decreased from around $9 trillion to $6.6 trillion since the initiation of QT, as bonds are allowed to mature without replacement [5]. - There are indications that liquidity conditions are tightening, evidenced by firming repo rates and temporary pressures on specific dates [3]. Group 2: Future Outlook and Monetary Policy - Powell indicated that the Fed's ample reserves regime has been effective for monetary policy implementation and financial stability [6]. - The extent to which the Fed can continue to shrink its holdings remains uncertain, but officials believe there is still sufficient liquidity to proceed with QT without disrupting money markets [5]. - Powell emphasized the importance of maintaining the Fed's interest-paying powers to ensure effective rate control and avoid significant market stress [6].