Earlier this month, Federal Reserve Chair Jerome Powell hinted that the Fed could soon end its quantitative tightening program, the process of steadily shrinking its balance sheet. Now, some analysts think it could stop as soon as today.
The balance sheet is central to how the Fed controls monetary policy. Banks keep reserves at the Fed and earn a guaranteed return on them. This return acts as a baseline for interest rates throughout the financial system.
The Fed uses the reserves to influence the federal-funds rate, its main benchmark interest rate, which it lowered to a range of 3.75% to 4% in September. Banks and other institutions can also temporarily trade their U.S. Treasury bonds to the Fed for cash when they need quick funding. These transactions are called repurchase agreements, or repos.
