Fed Likely to Delay Rate Cuts Until September—Balance Sheet Strategy Now in Focus

While Wall Street waits for the Federal Reserve to pivot toward rate cuts, the central bank appears to be in no hurry—and attention is shifting to what it will do with its $7.4 trillion balance sheet.

The Fed is widely expected to hold interest rates steady at its next meeting, with markets now eyeing a potential rate cut in September. But increasingly, traders and economists are asking a different question: When will the Fed stop quantitative tightening (QT)?

QT is the process of shrinking the Fed’s balance sheet by allowing bonds to roll off without being replaced. Some, like BlackRock’s Rick Rieder, say it’s time to pull the plug. “There is no reason why you wouldn’t just end QT,” he said, citing increased volatility and the typically illiquid summer months as justification.

Rieder also suggested that tariff-driven inflation, which so far has had minimal impact on data, could shift the Fed’s tone later this summer. Companies have mostly absorbed tariffs, but that may change. If businesses start passing those costs on to consumers, it could lead to stickier inflation—or, conversely, reveal that pricing pressures are still under control, opening the door for easing.

Other strategists agree the Fed will likely wait for more data—particularly on labor markets and tariff clarity—before acting. Morgan Stanley’s Vishal Khanduja said the Fed is “in a wait-and-see mode,” needing clearer evidence that inflation is receding sustainably.

Meanwhile, bond market volatility and geopolitical risk—from escalating tensions between Israel and Iran—are complicating the Fed’s decision-making. With long-term Treasury yields rising sharply, investors are questioning the value of the long end of the curve as a safe haven, pushing attention toward shorter-duration assets for stability and yield.

Bottom line: The Fed may wait until September to cut rates, but don’t ignore what’s happening behind the scenes. QT may end sooner than expected as liquidity and volatility concerns take center stage. Traders and economists will be watching closely not just for rate guidance—but for signs that the Fed is preparing to shift its entire approach.