The Fed stops shrinking its balance sheet

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.

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 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.