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2025-10-20 21:21:19
The Fed's balance sheet reduction is nearing its final stages, with a liquidity inflection point quietly approaching. (1) Research institutions suggest that signs of funding pressure in the repo market could prompt the Fed to announce the end of its balance sheet reduction next week. (2) Fed Chairman Powell hinted earlier this month that he was awaiting the right time to conclude the balance sheet reduction. (3) Last week's slight volatility in the repo market served as a key signal, prompting policymakers to potentially take early action. (4) Institutions expect the Fed to begin purchasing US Treasuries to offset maturing mortgage bonds and maintain a stable overall balance sheet size. (5) As the Fed shifts to a neutral policy stance, the supply of short-term Treasury bonds in the market could decrease by approximately $20 billion per month. (6) This policy shift signals the end of the era of quantitative tightening and the beginning of a new phase in liquidity management.
