Powell Signals Possible Pause in Balance‑Sheet Runoff and Rate Cuts as U.S. Dollar Growth May Be Firmer

• Fed close to halting runoff once bank reserves remain comfortably above the ample threshold.

• Powell flagged slowing payroll gains and softer labor-market signals that influence future rate decisions.

• Fed bond holdings fell from nearly $9 trillion at peak to over $6 trillion; pre-COVID balance-sheet was about $4 trillion.

Federal Reserve balance-sheet reduction nears pause as Powell signals runoff may stop; COINOTAG outlines effects on liquidity, rates and inflation data.

Published: Oct 14, 2025. Updated: Oct 14, 2025. Author: COINOTAG.

How close is the Federal Reserve to ending its balance-sheet reduction?

The Federal Reserve balance-sheet reduction is approaching a potential stop, Chair Jerome Powell said, as reserves appear to be nearing levels the Fed judges “ample.” Officials expect to halt runoff when reserves remain comfortably above that threshold, a calibration intended to avoid undue tightening of liquidity while evaluating inflation and labor-market data.

How will stopping runoff affect liquidity and rate policy?

Powell explained that the Fed has reduced its Treasury and mortgage-backed securities holdings from about $9 trillion at the pandemic peak to just over $6 trillion, and it does not intend to return to the pre-COVID size near $4 trillion. He warned that continued deep cuts to reserves risked slowing lending and growth: “Some signs have begun to emerge that liquidity conditions are gradually tightening,” he said. The Fed will use a range of indicators to judge when reserves are “somewhat above” ample and pause runoff to preserve market functioning.

Frequently Asked Questions

When will the Fed officially stop balance-sheet runoff?

The Fed has not set a date. Powell said the decision depends on monitoring multiple indicators showing reserves and liquidity; the pause will occur once reserves remain somewhat above the level judged ample. This is a data-driven decision, not a calendar announcement.

Will ending runoff mean immediate rate cuts?

Ending runoff is distinct from cutting rates. Powell indicated the Fed is weighing risks to employment and inflation; the Federal Open Market Committee eased policy by 25 basis points in September, but further cuts will depend on incoming data and labor-market conditions.

Detailed analysis

At the National Association for Business Economics conference in Philadelphia, Powell outlined the mechanics and rationale behind the balance-sheet strategy. The Fed began allowing maturities to roll off in mid-2022. That runoff has materially reduced holdings of Treasurys and mortgage-backed securities and drained bank reserves relative to pandemic-era levels. Powell stressed that while the Fed’s portfolio shrank, officials do not plan to revert to pre-pandemic size; instead, they will seek a reserve cushion that supports market functioning.

Powell addressed political criticism over paying interest on reserve balances, saying that eliminating the Fed’s ability to pay interest on reserves or other liabilities would undermine policy control. He noted that rapid rate increases temporarily pushed the Fed’s net interest income negative, but that pattern should reverse as policy normalizes. The chair emphasized that paying interest on reserves is necessary to manage short-term rates.

On rates, Powell framed the policy challenge as balancing two risks: moving too far and leaving inflation uncomfortably high, or moving too little and causing avoidable job losses. He observed post-July data showed the labor market had “softened pretty considerably,” with payroll gains slowing—partly due to lower immigration and reduced labor-force participation. These labor signals bring the two risks closer together and influence the timing and size of future rate moves.

Powell also noted the recent government shutdown complicated economic assessment by interrupting major reports such as payrolls and inflation indexes. The Bureau of Labor Statistics has recalled staff to prepare the next consumer price index report expected next week. Powell added that recent goods-price increases were mainly linked to tariffs, not a broad-based reacceleration of inflation.

Market participants expect additional rate adjustments this year, but Powell declined to endorse a fixed path. He emphasized that “there is no risk-free path for policy” and reiterated the Fed’s reliance on incoming data.

Sources: Federal Reserve, Bureau of Labor Statistics, Federal Open Market Committee (FOMC) statements and transcripts. All references are presented as plain text in accordance with editorial policy.

Key Takeaways

• Runoff pause likely soon: The Fed will stop balance-sheet runoff once reserves remain “somewhat above” the ample level to prevent liquidity tightening.
• Rate decisions remain data-dependent: Powell highlighted softer payrolls and ongoing inflation monitoring; further rate moves depend on incoming data.
• Policy tools intact: Paying interest on reserves is essential to controlling short-term rates; changes to that authority would risk policy effectiveness.

Conclusion

The Federal Reserve balance-sheet reduction appears close to a pause, according to Chair Jerome Powell, who stressed a data-driven approach to stopping runoff and to future rate decisions. COINOTAG will continue monitoring official reports and FOMC communication for updates on liquidity conditions, labor-market signals, and inflation readings. For readers tracking policy implications, prioritize incoming BLS and FOMC releases for the next steps.