Core Viewpoint - There is a growing expectation on Wall Street that the Federal Reserve will soon end its balance sheet reduction process, with some analysts predicting a potential restart of balance sheet expansion in the near term [1][4]. Group 1: Federal Reserve's Policy Meeting Expectations - Economists are calling for the Federal Reserve to announce the termination of quantitative tightening (QT) at the upcoming two-day policy meeting, with a general market expectation for a 25 basis point cut in the benchmark interest rate to a range of 3.75%-4.00% [1][4]. - The unexpected and sometimes severe rise in money market rates is a core reason for analysts urging the central bank to end the balance sheet reduction [1][4]. - The use of the Standing Repo Facility indicates that previously ample liquidity in the money market is tightening, further shifting expectations [1]. Group 2: Market Pressure and QT Implications - During the QT period, indicators show that the funds withdrawn from the financial system have reached a critical point, leading many economists to believe that the QT window is officially closed if policymakers wish to maintain control over the federal funds rate [4]. - Deutsche Bank strategists expect the FOMC to announce the end of QT at the upcoming meeting, while some analysts express uncertainty about whether this will happen [4]. - Federal Reserve officials have provided vague guidance on the future of QT, with Chairman Powell mentioning that QT may end in the coming months while emphasizing the need for flexibility in balance sheet management [4]. Group 3: Potential for Market Interventions - The Federal Reserve's balance sheet expanded significantly during the COVID-19 pandemic, and the current QT process has reduced its holdings from approximately $9 trillion to $6.6 trillion [5]. - The Fed's previous aim to withdraw excess liquidity was to ensure sufficient cash in the financial system and maintain the federal funds rate at desired levels, but there are no clear indicators for when these goals will be achieved [5]. - Some analysts suggest that the current pace of QT is nearly stagnant, and even if an announcement to terminate QT is made soon, it may not stabilize the money market as needed [5]. Group 4: Future Actions and Predictions - Analysts from JPMorgan suggest that after terminating QT, the Federal Reserve should "immediately" implement temporary market interventions and lower the borrowing rate of the Standing Repo Facility to enhance its attractiveness [6]. - Evercore ISI predicts that the Fed will need to turn to net purchases of bonds earlier than planned, estimating monthly net purchases of about $35 billion in Treasury bonds starting in the first quarter of next year [7]. - There is a consensus that the Fed's future bond purchases will primarily focus on short-term Treasury bills, while the reduction of MBS holdings may continue due to challenges [7].

Group 1 - Federal Reserve Chairman Jerome Powell hinted at a potential halt in the reduction of U.S. Treasury securities from the balance sheet in the coming months, without mentioning the Treasury's role in this process [1] - The Treasury has been increasing the supply of short-term Treasury bills (maturing in one year or less), indicating a need for the federal government to maintain higher Treasury General Account (TGA) balances, which have been targeted at $850 billion for most of the past year [1] - Analysts suggest that the TGA balance could reach at least $900 billion in the upcoming quarterly update on November 3 [1] Group 2 - Bank of America data indicates that the increase in the weekly auction size of short-term Treasury bills suggests a net supply of approximately $146 billion this month, exceeding expectations by $80 billion [2] - The increase in short-term Treasury bill supply necessitates a higher TGA balance to match cash flow, with the Treasury aiming to maintain the TGA balance at a level sufficient to cover one week of expenditures and maturing tradable debt [2] - Wrightson ICAP's senior economist Lou Crandall noted that the official quarterly target balance for the TGA has remained stable at $850 billion for most of the past year, with expectations for an increase to $900 billion in the new borrowing forecast to be released on November 3 [2]