"The Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion." Fed Chairman Powell
The Fed is over their pre-pandemic balance sheet by trillions of dollars, and it now want to cut the redemption cap by 80% to $5 billion a month or $60 billion a year. Why pretend that you are making any effort to adjust your balance sheet.
We don't want to go into all of the balance sheet dynamics. The Fed is still holding a large MBS portfolio that will not run-off because prepayments have slowed. The still pays balances on reserves, so it has a negative carry portfolio. The slowing of QT helps the Treasury and reduces pressure on interest rates. The overall effect allows more "money" in the baking system which will make it that much harder to get down to the magic 2% target. There may be pressure to not lower rates, but the QT at $25 billion will show resolve without strong market impact. Cutting to $5 billion shows no resolve and generates a signal that the Fed is not ready to get back to normal.
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