"Analyzing the Impact of the Fed's QT Policy on the Economy"

The Federal Reserve is expected to discuss how to slow the shrinking of its balance sheet, a policy tool used to tighten financial conditions and combat inflation. This "quantitative tightening," or QT, involves shedding Treasury and mortgage bonds accumulated during the pandemic, pushing up long-term interest rates. The timing of slowing this balance sheet runoff may depend on the level of money market reserves, with officials aiming to avoid market upheaval experienced in the past. Fed officials view QT and interest rates as separate tracks, with plans for the balance sheet independent of rate cuts.