As reported by Reuters, several major banks and independent analysts forecast a slowdown or even suspension of the US Federal Reserve's (Fed) balance sheet reduction following the regulator's meeting this week.
According to Evercore ISI analysts, the US Central Bank may slow down the process of reducing bond holdings as part of quantitative tightening. Bank of America experts expect the process to be suspended. Goldman Sachs analysts have the same opinion, expecting the resumption of quantitative tightening after the debt ceiling issue is resolved and the structure of liabilities on the balance sheet is normalized.
Increased uncertainty around the prospects of reducing the Fed's balance sheet was facilitated by the recently published minutes of the regulator's January meeting. The document notes that the Treasury's efforts to manage funds under the conditions of the debt ceiling may lead to large fluctuations in liquidity in the money market. This makes it difficult to assess the impact of quantitative tightening on the environment.
The minutes state that suspending or halting the reduction will give the Fed an opportunity to assess the circumstances and resume the program when the situation stabilizes.