The Lombard Review
Economy

The Fed stops shrinking its balance sheet

QT end timing

The Federal Reserve Board's Eccles Building on Constitution Avenue
The Federal Reserve Board's Eccles Building on Constitution AvenuePhoto: AgnosticPreachersKid / Wikimedia Commons, CC BY-SA 3.0
1 min read Data: Cut to 3.75–4.00%; QT ends 1 Dec

At its October policy meeting, the Federal Open Market Committee delivered a widely expected 25-basis-point interest rate cut, lowering the benchmark federal funds target to 3.75–4.00 per cent. Far more significant, however, was the official announcement that quantitative tightening (QT) will definitively terminate on 1 December.

Brokers on the floor of the New York Stock Exchange
Brokers on the floor of the New York Stock ExchangePhoto: Thomas J. O'Halloran / Wikimedia Commons, Public domain

The Surrender to Money Market Reality

The decision to end balance-sheet runoff marks the central bank’s capitulation to funding market mechanics. With SOFR trading above IORB and repo spreads widening under the weight of massive Treasury bill issuance, the Fed had exhausted its reserve cushion. Central bank staff recognized that continuing to roll off $25 billion in Treasuries and mortgage-backed securities risked triggering a catastrophic liquidity seizure in money markets.

The Manhattan skyline from Upper New York Bay
The Manhattan skyline from Upper New York BayPhoto: Jakub Hałun / Wikimedia Commons, CC BY 4.0

The Floor of the Balance Sheet

Halting QT at an aggregate balance sheet of roughly $6.5 trillion confirms that the structural demand for reserves inside the modern banking system is vastly higher than pre-2008 baselines. By terminating quantitative tightening on 1 December, the Federal Reserve has drawn a permanent line under balance-sheet contraction, prioritizing financial plumbing stability over monetary normalization.