Bank of America and JPMorgan now expect the Fed to end quantitative tightening next week, earlier than planned

Strategists at JPMorgan and Bank of America expect the Federal Reserve to stop shrinking its roughly $6.6 trillion balance sheet this month, bringing an end process designed to remove liquidity from financial markets.

According to Bloomberg, both banks had previously expected the Fed to pause in December or even early 2026, but things changed fast as borrowing costs in dollar funding markets surged too sharply.

The Fed’s unwind of its Treasuries and mortgage-backed securities is meant to drain excess cash, but the signs suggest the market’s reaching its limit. “Money markets at current or higher levels should signal to the Fed that reserves are no longer ‘abundant,’” Bank of America’s Mark Cabana and Katie Craig wrote in a client note. That’s banker-speak for “cut the crap before things snap.”

At JPMorgan, strategist Teresa Ho said that “markets have been operating with much more frictions” and pointed to the Fed’s reverse repo facility drying up as a major warning. TD Securities and Wrightson ICAP also moved up their timelines to October, while Barclays and Goldman Sachs still think the runoff will end a bit later.

Powell says reserves are nearly at ‘ample’ level

Fed Chair Jerome Powell didn’t leave much doubt earlier this month. He said the balance sheet runoff would stop when reserves are “somewhat above” the level considered ample, meaning just high enough to prevent a market crash.

“We may approach that point in coming months,” Powell said in his speech. That was all traders needed to hear. Wall Street’s now reading that as code for “we’re close.”

Still, the Fed’s tools aren’t just limited to the balance sheet. Some traders expect a policy rate cut next week, potentially bringing the federal funds rate down to 3.75%–4%. But without good data, any move now comes with blind spots.

And that’s where the second problem hits: the government shutdown is cutting off the Fed’s access to economic data.

Since early October, official reports on things like unemployment, retail sales, and other critical indicators have gone dark. The shutdown stopped government data collection in its tracks, leaving the Fed flying blind just days before a key policy meeting.

To make it worse, the labor market was already softening. August showed the slowest hiring pace since 2010, and unemployment was rising fast among young people and minorities. The central bank can’t properly judge whether the slowdown is temporary or systemic.

Fed hunts for alternatives as data blackout continues

With the government’s economic engine stalled, the Fed is turning to whatever’s still running. New York Fed President John Williams said in an interview on October 9 that “we’re still getting a significant amount of data,” pointing to surveys from the Conference Board, the New York Fed, and the Institute for Supply Management. These surveys help track pricing, demand, and business activity—but they’re nowhere near as complete as what agencies like the Commerce Department and Bureau of Labor Statistics normally deliver.

And this time, the situation is even more fragile. ADP, a key payroll software firm, ended its data-sharing deal with the Fed back in August, cutting off another private source of jobs data. That leaves policymakers with even fewer tools than they had during the last shutdown in 2018–2019, when they leaned on card transactions and vehicle sales just to scrape together a picture of consumer behavior.

One exception is the Consumer Price Index for September, which will be released this Friday. The Bureau of Labor Statistics recalled staff just to ensure that release could go out, so Social Security’s annual cost-of-living adjustments have a basis. But that’s it. Most other reports remain frozen.

And economists widely agree on one thing: private-sector numbers just don’t cut it.

Get seen where it counts. Advertise in Cryptopolitan Research and reach crypto’s sharpest investors and builders.