Treasuries focus on Fed Chair Powell's comments

After the recent Federal Open Market Committee (FOMC) meeting, markets are closely watching the comments and mood of Chair Jerome Powell. At the meeting, Powell mentioned quantitative tightening (QT), but did not provide much new information. However, the meeting minutes indicated that QT is an important topic among committee members. Currently, the Federal Reserve (Fed) is on a path that could see bank reserves decrease to around $3 trillion by mid-2025. This amount represents about 10% of the U.S. GDP. The Fed prefers to avoid dropping reserves below this level due to past experiences with liquidity issues when reserves fell to 7.5% of GDP. When QT ends, the Fed is expected to resume purchasing Treasuries regularly, buying between $50 billion and $100 billion per month to maintain their existing holdings. This will normalize the Fed's role as an ongoing participant in the Treasury market. While these developments are significant, they are not likely to drastically change market trends. The focus remains on Powell's tone and guidance, alongside the Fed's projected trajectory for QT and interest rates. Looking ahead, the Fed is expected to stick to its earlier forecasts, indicating it may implement two rate cuts of 25 basis points this year. However, there is no urgent need for cuts, as unemployment is low and inflation remains above target, partly due to tariffs.