Federal Reserve Messenger: Fed may consider suspending balance sheet lock to address accounting cap risk

BlockBeats News: On March 19th, Nick Timiraos, a Wall Street Journal reporter known as the "voice of the Federal Reserve," stated in his latest report that Federal Reserve officials will consider adjusting the policy of reducing $6.8 trillion in asset holdings on Wednesday. Over the past three years, the Federal Reserve has been reducing the portfolio of US treasury bond bonds and mortgage-backed securities accumulated in previous stimulus plans, including the stimulus measures taken to stabilize the dysfunctional market when the COVID-19 epidemic subverts business activities in 2020. The Federal Reserve is trying to avoid a repeat of 2019, when it was also reducing its balance sheet. At that time, the reduction of the balance sheet led to a tight overnight financing market, forcing the Federal Reserve to change policy and expand its balance sheet. Due to the mutual influence of the Federal Reserve's balance sheet reduction and the need for Congress and the White House to raise the federal debt ceiling, the likelihood of market volatility in the coming months will increase. At the latest meeting held in January, Federal Reserve officials discussed the risks posed by pushing up the US debt ceiling, which could consume too much reserve from the system too quickly. The minutes of the meeting showed that officials discussed slowing down or suspending the reduction of the balance sheet for several months so that the debt ceiling would not affect the Federal Reserve's ability to fine tune the balance sheet. Blake Gwin, interest rate strategist at RBC Capital Markets, said that Federal Reserve officials can pause reserve cuts until the Treasury rebuilds cash balances several months after the debt ceiling is raised. At that time, the Federal Reserve can continue to restore and reduce reserves on its own terms.