FED
In a Fed meeting that brought few major revelations, one of the more concrete conclusions is that the FOMC is not considering changing balance sheet policy in the immediate future.
- There had been multiple analysts who had expected quantitative tightening to end or at least be slowed earlier rather than later in H1 2025, with some looking at the March meeting for a possible announcement.
- But when asked about the state of reserves and QT this week, Powell conveyed no urgency whatsoever: “the most recent data do suggest that
reserves are still abundant. Reserves remain roughly as high as they were when runoff began and the Federal funds rate has remained very steady in the target range... I don't have anything to say to you about particular dates.” - We anticipate that multiple analysts who saw QT ending in Q1/early Q2 will push back their expectations to later in the year if they haven't already. Following the Fed meeting, JPMorgan pushed back its expectation for QT to end in March, now seeing September (end-Q3), "with symmetric risks around that date".
- We didn't see an update on this front from the likes of Goldman which sees Treasury runoff ending at end-March (per their Treasury Refunding preview), with the balance sheet stopping shrinking altogether at end-June with MBS proceeds to be reinvested into Tsys at that point and "reserve management purchases" to begin at the start of 2026. Morgan Stanley, which has stuck to its forecast of the next rate cut at the March meeting, also had pencilled in a QT end in March but we are unaware of any update to that view post-FOMC.
- Other pre-FOMC QT end-timing views included UBS (April), Citi / Deutsche / Nomura / Wells Fargo (June), BofA / TD (Sept), suggesting a central expectation of end-Q2/beginning Q3.
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