Wall Street's current stance on the Federal Reserve's balance sheet reduction is once again uncertain, with many banks and experts now predicting that the central bank may slow down or halt the process at the upcoming policy meeting. The two-day Federal Reserve meeting is set to conclude this week, with no expected changes to interest rates but concerns arising about the impact of reducing bond holdings under quantitative tightening (QT) on money markets. The Treasury Department is also facing issues managing government finances due to the federal debt limit.

Analysts at Evercore ISI anticipate that the Fed will likely decrease the rate at which Treasury bonds are being released. Bank of America suggested that given the increased uncertainty, especially due to tariff announcements by the Trump administration, it is likely that QT will be paused. Goldman Sachs projects that the Federal Open Market Committee could announce a pause in QT starting in April, with guidance indicating a resumption once the debt ceiling issue is resolved and the balance sheet's liability composition normalizes.

While some experts expect a pause in QT, TD Securities doesn't foresee significant changes to the effort at the moment. The ongoing uncertainty surrounding QT, in progress for over two years, was highlighted in meeting minutes from the Fed's January meeting, which pointed out the challenges in managing liquidity due to the Treasury's cash management during the federal borrowing limit impasse.

The Treasury is currently drawing down its account at the Fed to cover expenses under the borrowing cap, injecting liquidity into the system. Once the borrowing limit is raised, the Treasury will replenish this account, removing liquidity. This back-and-forth makes it difficult to determine the level of liquidity in the financial system. The minutes suggested that pausing or halting the drawdown temporarily would give the Fed the opportunity to evaluate the situation before resuming QT in the future.

Although the meeting minutes indicated that some policymakers were open to slowing down or pausing QT, the Fed officials have not provided extensive guidance on the matter.