Fed Expected to Pause Balance Sheet Runoff in 2025
The Federal Reserve is expected to pause its balance sheet runoff in 2025, according to a projection by TD Securities. This would mean that the Fed stops letting Treasury securities and mortgage-backed securities mature without reinvestment, effectively halting the decline in its asset holdings.
This forecast comes as the Fed has been reducing its balance sheet by up to $95 billion per month since 2022. However, signs of strain in funding markets and concerns about reserve scarcity have led many analysts to anticipate a slowdown or halt.
The decision to pause quantitative tightening (QT) is not purely mechanical; it reflects a delicate balance between controlling inflation and supporting a resilient labor market. A premature halt could reignite inflationary pressures, while delaying too long could strain bank reserves and money markets.