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Investing.com -- Following the recent release of the Federal Open Market Committee (FOMC) January meeting minutes, Deutsche Bank (ETR:DBKGn)’s U.S. head of rates research, Matthew Raskin, anticipates a pause in Quantitative Tightening (QT) in March. QT is a method utilized by central banks to slow down the economy by reducing the amount of money in circulation.
Raskin stated, "In light of discussion in its January minutes (released yesterday), we now expect the FOMC to announce a pause to QT at its March meeting, to be implemented in April." This pause is expected to continue until the Federal Reserve’s liabilities have normalized after resolving the debt limit. The bank anticipates a resumption of QT in October, with the current caps remaining at $25 billion on U.S. Treasuries (USTs) and $35 billion on Mortgage-Backed Securities (MBS).
Furthermore, Deutsche Bank has revised its assumption of the level of ample reserves from $3 trillion to $2.75 trillion. This change, along with the assumption that the FOMC will stop QT with reserves "somewhat above ample," leads Deutsche Bank to expect the end of QT altogether in the first quarter of 2026.
After the end of QT, Deutsche Bank anticipates that MBS prepayments will be invested into USTs to further reduce the share of MBS in the System Open Market Account (SOMA) portfolio. Raskin added, "And, in early 2027, balance sheet growth will restart to accommodate growth in non-reserve liabilities that would otherwise lead reserves to decline."
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