Why Would the Fed Pause QT?

February 24, 2025 — The most notable item in the minutes of the January FOMC meeting released last week was the committee’s discussion on “issues related to the balance sheet,” indicating that “regarding the potential for significant swings in reserves over the coming months related to debt ceiling…it may be appropriate to consider pausing or slowing balance sheet runoff.” While not an explicit monetary policy action, the Federal Reserve’s rumored pause or slowdown in its quantitative tightening (QT) runoff ahead of this summer’s debt ceiling discussions is nonetheless significant, with broad implications for liquidity and markets. In this post we attempt to demystify the mechanics and implications behind why the Fed is considering pausing its QT program.