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Citi Analyst: Powell May Take Gradual Approach to Fed Balance Sheet Reduction

2026.02.10 14:23:23

Feb. 10 — A Citigroup strategist said Federal Reserve Chair nominee Kevin Warsh may take a gradual approach to shrinking the central bank’s $6.6 trillion balance sheet to avoid reigniting market turmoil. Citi strategists Alejandra Vazquez Plata and Jason Williams note the Fed under Warsh still has options to reduce its footprint. Rolling over longer-dated Treasury holdings into short-term debt — framed as the “path of least resistance” — would shorten the weighted average maturity of its holdings. The incoming chair may seek consensus among policymakers while prioritizing securing committee support for rate cuts. Additionally, the Fed could slow its ~$40 billion monthly Treasury purchases or halt them entirely. Other options include letting its mortgage-backed securities (MBS) holdings shrink naturally as they mature. Citi projects coupon-bearing bond issuance will rise starting in November 2026, with a risk of delay until February 2027. (FXStreet)
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The probability of the Fed keeping interest rates unchanged in April is 99.5%

As of April 4th, CME’s FedWatch Tool shows the probability the Federal Reserve will hike rates by 25 basis points at its April meeting stands at 0.5%, with the odds of holding rates steady at 99.5%.

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Institution: US Labor Market Still Fragile, with a 40% Chance of Entering an Economic Recession

April 4th — EY-Parthenon Senior Economist Lydia Boussour noted Wednesday that while U.S. March employment data showed a strong rebound, the labor market remains fragile. Against a backdrop of policy uncertainty, businesses are growing more cautious: hiring intentions are cooling, and firms are increasingly prioritizing protecting profit margins by boosting productivity rather than expanding headcount. “Looking ahead, we anticipate the U.S. labor market will be largely frozen in 2026 — marked by selective hiring, muted wage growth, and strategic workforce adjustments amid a historically tight labor supply environment.” Boussour projects job growth will run slightly below the breakeven level, pushing the unemployment rate to gradually rise to around 4.7%. “With the Middle East conflict ongoing, downside risks remain dominant — and there’s a 40% probability of a U.S. economic recession,” she added. (Source: FX678)

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The current mainstream CEX, DEX funding rate indicates a weakening bearish sentiment in the market

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In the past 24 hours, the entire network has seen $133 million in liquidations, with both longs and shorts getting liquidated.

On April 4th, per Coinglass data, total crypto liquidations across the network hit $133 million over the past 24 hours, with $77.83 million in long position liquidations and $54.89 million in short position liquidations.

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Federal Reserve's Daly: Fed Should Focus on Employment Rates, Not Jobs Data

**April 4th – Federal Reserve official Daly said the U.S. economy no longer needs to generate large numbers of jobs to keep the employment-population ratio steady. In this environment, monthly hiring figures no longer accurately reflect labor market health, and the unemployment rate is a more reliable measure.** **“Ratios and indicators like the employment-population ratio, unemployment rate, quit rate or hiring rate capture changes in workforce size, making them clearer reflections of labor market health,” she stated.** **Source: FX678**

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