Why did the Federal Reserve decide to slow down the pace of balance sheet reduction?

According to the Wall Street Journal, the Federal Reserve has been carrying out a balance sheet reduction plan for the past three years, but now, it has decided to slow down the pace of balance sheet reduction. Why is it making a change? Probably because the Fed is trying to avoid a repeat of what happened in 2019. At that time, the Fed was also shrinking its balance sheet, but the balance sheet reduction led to a tightness in the overnight funding market, and the market was illiquid, forcing the Fed to make a 180-degree U-turn and re-expand its holdings. Due to the interplay between the Fed's balance sheet reduction plan and the need for Congress and the White House to raise the debt ceiling, the likelihood of a small problem in the market will increase in the coming months.

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