Citi: The Fed is not afraid of a short-term surge in financing rates, and the balance sheet reduction will continue until next year

Citigroup stated that the Federal Reserve may continue its plan to reduce its balance sheet until the second quarter of 2025, unless there is an economic recession, which is longer than the previously predicted deadline. Since June 2022, the Federal Reserve has been gradually reducing its bond holdings through a process called quantitative tightening (QT). Last week, the Federal Reserve stated that it will slow down the pace of selling US Treasury bonds each month, partly to ease potential pressure on the financing market. Citigroup previously predicted that the Federal Reserve's measures to reduce its balance sheet will continue until the end of 2024, which is largely consistent with the expectations of other Wall Street strategists.