The most important part of the minutes today is again about the possibility of slowing QT soon/.
FED warned RRP depletion will be negative to bank reserves, as I noted and explained here before.
The staff also noted that once the ON RRP facility is either depleted or stabilized at a low level, reserves will decline at a pace comparable with the runoff of the Federal Reserve’s securities portfolio, all else equal.
But they will try to offset that negative effect by slowing the pace of QT, so an announcement in March or May about this is very likely. However, slowing QT could just mean being able to keep QT for longer.
In light of ongoing reductions in usage of the ON RRP facility, many participants suggested that it would be appropriate to begin in-depth discussions of balance sheet issues at the Committee’s next meeting to guide an eventual decision to slow the pace of runoff.
Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer.
In addition, a few participants noted that the process of balance sheet runoff
could continue for some time even after the Committee begins to reduce the target range for the federal funds rate.
About rate cuts, they are currently more concerned about cutting too quickly than waiting too long, probably due to potential upside risks on inflation.
Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent. A couple of participants, however, pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long
Several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause progress on inflation to stall.