Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision. Some signs have begun to emerge that liquidity conditions are gradually tightening, including a general firming of repo rates along with more noticeable but temporary pressures on selected dates. The Committee’s plans lay out a deliberately cautious approach to avoid the kind of money market strains experienced in September 2019.
— Chair Jerome H. Powell, “Understanding the Fed’s Balance Sheet,” speech delivered October 14, 2025
Last week, Chair Powell announced that the Fed is getting close to ending quantitative tightening (QT), which began in June 2022. During this cycle, the Fed has managed to reduce the size of its balance sheet by $2.3 trillion, to $6.6 trillion, after ballooning to $8.9 trillion. The decision to end QT comes as emerging stress in the financial system has been signaling that the level of reserves, while still in “ample” territory, is moving closer to “scarce.”
In this Economics Weekly, we discuss how QT has played out so far and what its ending might mean for financial markets.