Fed to Hold Interest Rates Steady Through 2025 Amid Balance Sheet Pause

The Federal Reserve is likely to pause its balance sheet runoff in 2025, according to TD Securities. This move would mark a significant shift in the central bank's quantitative tightening (QT) strategy, with the benchmark interest rate remaining unchanged through 2025.

Under the current framework, known as the Reserve Management Profile (RMP), the Fed has been reducing its balance sheet by up to $95 billion per month since 2022. A pause in this process would mean that the Fed stops letting Treasury securities and mortgage-backed securities mature without reinvestment, effectively halting the decline in its asset holdings.

TD Securities expects the federal funds rate to remain at its current range of 5.25% to 5.50%, resisting cuts despite market expectations. The pause in QT would complement this stance by keeping financial conditions stable, avoiding an unintended tightening that could disrupt economic growth.