The Federal Reserve is expected to leave interest rates unchanged in tomorrow’s policy announcement, but the crowd is anticipating that the central bank will begin to pare its $4.5 trillion debt portfolio. If unwinding the balance sheet is about to begin, which implies tighter monetary policy, the first step in the process arrives as Treasury yield spreads are close to the lowest point since the last recession weighed on the US economy.

The difference in the 10-year Treasury yield less the 2-year rate, for instance, is less than 10 basis points above its lowest point in a decade, based on daily data via Treasury.gov. This spread ticked up to 83 basis points on Monday (Sep. 18), but that’s still close to the smallest difference since late-2007.

Low yield spreads are generally interpreted as a sign of caution for the economic outlook. By that reasoning, the sharp decline in spreads this year suggests that the Fed’s plans for trimming its balance sheet could create new headwinds for growth.

Even under the best of circumstances the road ahead for monetary policy may be hazardous as the central bank moves forward with reversing a decade of quantitative easing.

“Inching us out of this parallel universe of endless liquidity is going to be a fraught process,” says James Athey, senior investment manager at Aberdeen Standard Investments. “No one’s done it before so no one can credibly claim to know what will happen.”

The task may be further complicated if the bond market is pricing in a future of decelerating economic growth. For the moment, however, most forecasters still anticipate a moderate expansion for the near term. Wall Street economists are looking for third-quarter GDP growth of 2.4%, based on last week’s median forecast via CNBC’s survey for Sep. 16. Note, however, that the outlook calls for a moderately softer rise vs. Q2’s 3.0%. It’s unclear how much of the anticipated deceleration is due to the temporary blowback from recent hurricanes.

There’s also uncertainty about what’s in store for interest rates once the Fed starts to unwind its balance sheet. As Bloomberg notes, the received wisdom is that once the reversal of quantitative easing (QE) starts, interest rates will rise. But some analysts say that view is wrong. “During QE, the important thing was the signaling effect — the Fed was going to come in and reflate the economy, provide stimulus and higher rates of growth, and dissuade people from owning Treasuries and force them into other markets,” explains Brian Nick, the chief investment strategist at TIAA Investments. “Now on the way out, if the idea is that the Fed is not as stimulative as it once was, it might have the effect of depressing” yields.

The Treasury market seems to agree. Although the benchmark 10-year Treasury yield has increased in recent days, it’s not yet clear that the downward trend that’s prevailed for much of the year so far has run its course. Will tomorrow’s policy announcement change the calculus?

Ready or not, the Great Unwinding may be imminent. No one knows if it it’ll be disruptive or a non-event that barely registers in the financial markets. The one thing that everyone agrees on is that there’s no precedent for what awaits. As Austan Goolsbee, a former head of the White House Council of Economic Advisers, notes, “The final exam, with the grade yet to be determined, is can the Fed actually get out of this stuff?”