Fed Holds Rates, Slows Treasury Runoff Amid Market and Policy Uncertainty

Updated on April 11, 2025

The Federal Reserve has once again paused interest rate adjustments, reaffirming its commitment to a data-driven and cautious policy path. According to the minutes from the March 19–20 Federal Open Market Committee (FOMC) meeting, officials unanimously supported holding the federal funds rate steady while signaling a substantial moderation in the pace of quantitative tightening (QT).

Rates Unchanged, QT Moderated

The Fed maintained the federal funds rate target at 4.25% to 4.50%, continuing the hold in place since late 2024. This decision came as officials noted continued economic expansion, a resilient labor market, and a gradual easing of inflation—though price growth remains elevated relative to the Fed’s long-term 2% target.

However, the more prominent development was a slowdown in balance sheet runoff. Beginning April 2025, the Fed will lower its monthly cap for Treasury security redemptions from $25 billion to $5 billion, while leaving the $35 billion cap for agency mortgage-backed securities unchanged. This recalibration marks a deliberate shift to preserve liquidity in the banking system.

Uncertainty Weighs on Policy Outlook

FOMC participants cited rising uncertainty from both domestic and international fronts. Sentiment among households and businesses has deteriorated in recent months, with many officials pointing to concerns about upcoming changes in fiscal and trade policy—including the potential economic impact of new tariffs.

Although economic indicators point to continued growth, many committee members acknowledged that downside risks are intensifying. These include weaker business investment, slower consumer spending, and the first signs of job losses in government-funded sectors like universities and hospitals.

Diverging Views on Balance Sheet Strategy

While the decision to slow the pace of QT was broadly supported, Fed Governor Christopher Waller dissented, expressing concern that such a move may be premature. He argued that until more concrete evidence of liquidity strain emerges, the Fed should stay the course with the existing plan.

This dissent reflects broader internal debate around how best to balance growth and inflation risks, and whether the Fed might be stepping back from QT too early in the cycle.

Looking Ahead: Optionality Is Key

With the Fed’s balance sheet still over $6.5 trillion, the reduced pace of asset runoff signals a desire for greater flexibility. Analysts now believe the QT process could conclude as early as late 2025, depending on inflation data, employment trends, and broader liquidity conditions.

Fed officials emphasized that future decisions will remain contingent on evolving economic indicators, reaffirming their commitment to a balanced and adaptive monetary policy stance.

Bottom Line

The Federal Reserve is signaling a shift toward greater caution and flexibility, opting to slow Treasury runoff while keeping interest rates steady. This approach aims to manage rising uncertainty and maintain sufficient liquidity to support continued economic expansion.