Core Viewpoint - Powell's primary motivation for halting the balance sheet reduction is to prevent a liquidity crisis in the financial markets [4][19][21]. Group 1: Primary Motivation - Powell observed signs indicating that liquidity conditions are tightening, including a general rise in repo rates and specific temporary pressures on certain dates [4][19]. - The plan aims to avoid a situation similar to the liquidity crunch experienced in September 2019, where the SOFR spiked dramatically due to a sudden drop in bank reserves [18][20]. - The Federal Reserve's long-term strategy is to stop reducing the balance sheet when bank reserves are slightly above what is considered "adequate" [21][22]. Group 2: Secondary Motivation - Powell noted an increase in downside risks to employment and described the labor market as "slightly fatigued," suggesting that halting the balance sheet reduction could help stabilize the financial environment [23][24]. - This shift in policy is seen as a preventive measure to avoid exacerbating recession risks amid signs of economic fatigue [24]. - Powell emphasized the importance of clear communication to allow market participants to adjust their portfolios in response to the anticipated policy changes [26].