Fed Reinstates Expansion to Boost Market Liquidity with RMP

Summary

The Federal Reserve plans to restart balance sheet expansion in December 2025 by initiating Reserve Management Purchases (RMP), buying approximately $40 billion in short-term Treasury bills monthly to prevent a liquidity crisis.QQ News

Impact Analysis

So, the Fed’s restarting its balance sheet expansion with RMP is a clear signal they’re worried about liquidity, but they’re trying to avoid the full QE label. This isn’t just about technical adjustments; it’s a strategic move to stabilize the market without spooking it with full-blown QE. The timing is interesting—right at year-end, when liquidity is typically tight, suggesting they’re preemptively addressing potential market stress. The scale—$40 billion a month—is significant but not overwhelming, indicating a cautious approach. This could support asset prices, especially in equities and bonds, as it eases supply pressures and boosts sentiment. However, the market might be underestimating the Fed’s concerns about underlying financial system fragility. For portfolios, this could mean a tactical opportunity in U.S. equities and bonds, but watch for any signs of stress in the repo markets or unexpected shifts in Fed communication that could alter this narrative.QQ News+ 3