According to a report by Wall Street Journal reporter and "Fed mouthpiece" Nick Timiraos, Federal Reserve officials will consider adjusting their $6.8 trillion asset holding reduction policy. Over the past three years, the Federal Reserve has been reducing its portfolio of U.S. Treasuries and mortgage-backed securities accumulated during previous stimulus programs, including measures to stabilize the market during the 2020 pandemic.

Currently, the Federal Reserve may choose to pause or slow down this balance sheet reduction process. This move aims to avoid a repeat of the situation in 2019, when the reduction of the balance sheet led to tensions in the overnight funding market, forcing the Federal Reserve to turn around and expand its holdings.

Roberto Perli, the Federal Reserve Bank of New York official responsible for overseeing the implementation of the balance sheet, said this month that pausing the balance sheet reduction would be a "tactical decision" and "would not change the ultimate goal". RBC Capital Markets interest rate strategist Blake Gwinn pointed out that pausing the balance sheet reduction is reasonable because "the debt ceiling will distort these signals".

Currently, the Federal Reserve allows up to $25 billion in Treasuries and $35 billion in mortgage-backed securities to mature without reinvestment each month. As the holdings decrease, bank reserves also decrease. However, the debt ceiling issue may disrupt this process, as the Federal Reserve is also the government's banker.

Analysts expect the Federal Reserve may pause the balance sheet reduction for a few months until the debt ceiling is raised, and then resume it after the Treasury rebuilds its cash balance. Gwinn said that if the economy deteriorates, this "pause" could also turn into a "stop", prompting officials to terminate this form of policy tightening.