--- title: "Shenwan Hongyuan: The Federal Reserve has entered a new phase of \"normalization\" in balance sheet expansion; restarting QE may need to wait for the next crisis" type: "News" locale: "en" url: "https://longbridge.com/en/news/270901055.md" description: "Shenwan Hongyuan released a research report indicating that the Federal Reserve will initiate Reserve Management Purchases (RMP) after the FOMC meeting in December 2025, marking a new phase of \"normalization\" in balance sheet expansion. This move has sparked optimistic sentiment in the market regarding \"QE-style\" liquidity easing, but in reality, it signifies the end of the QE era. Historically, the Federal Reserve has conducted similar balance sheet expansions during four periods, and a restart of QE may need to wait for the next crisis. RMP is fundamentally different from QE, primarily focusing on managing liquidity in the money market and does not alter the Federal Reserve's policy stance" datetime: "2025-12-27T23:27:01.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/270901055.md) - [en](https://longbridge.com/en/news/270901055.md) - [zh-HK](https://longbridge.com/zh-HK/news/270901055.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/270901055.md) | [繁體中文](https://longbridge.com/zh-HK/news/270901055.md) # Shenwan Hongyuan: The Federal Reserve has entered a new phase of "normalization" in balance sheet expansion; restarting QE may need to wait for the next crisis According to the Zhitong Finance APP, Shenwan Hongyuan released a research report stating that after the December 2025 FOMC meeting, the Federal Reserve will initiate Reserve Management Purchases (RMP), igniting optimistic sentiments for "QE-style" liquidity easing. However, in reality, this marks the end of the QE era, not a restart. Throughout the century-long history of the Federal Reserve, there have been four periods of (quasi) QE-style balance sheet expansion: the Great Depression from 1929 to 1933, after the U.S. entered World War II in 1941, after the Lehman bankruptcy in 2008, and after the impact of the public health crisis in 2020. All of these occurred after zero interest rates. The Federal Reserve may need to wait for the next crisis to restart QE. **The main points from Shenwan Hongyuan are as follows:** **Hot Topic: The Federal Reserve's Balance Sheet Expansion and the End of the QE Era** **(1) Reserve Management Purchases (RMP): A New Phase of "Normalization" in the Federal Reserve's Balance Sheet Expansion** The December 2025 FOMC meeting announced the restart of "balance sheet expansion," with a slightly accelerated pace that exceeded expectations but met liquidity management requirements. By the end of 2025, reserves may have declined to ample levels, making early balance sheet expansion necessary to accommodate economic growth and prevent seasonal factors from disturbing reserve demand. The Federal Reserve has entered a new phase of "normalization" in balance sheet expansion, with two methods for providing reserves: Reserve Management Purchases (RMP) and principal reinvestment of agency securities. The trading desk will implement RMP starting December 12, with an initial scale of $40 billion, expected to remain high until April 2026, after which it may slow to an average of $20-25 billion per month. **(2) The Essence of RMP: Liquidity Management in the Money Market, Distinct from QE** RMP is purely a technical operation aimed at assisting the effective implementation of monetary policy without changing the Federal Reserve's policy stance. The so-called "monetary policy" mainly refers to interest rate policy; "effective" means that money market rates can fluctuate narrowly around the policy rate without the need for active and frequent open market operations. The "stance" refers to whether it is accommodative or tightening. Both RMP and QE lead to an expansion of the Federal Reserve's balance sheet, but there are essential differences. From an accounting perspective, RMP and QE have similar impacts on the quantity of the Federal Reserve's and commercial banks' balance sheets, but there are qualitative differences. RMP is a routine liquidity management operation, while QE is broadly "yield curve management." RMP is approximately "market neutral," whereas QE is "market non-neutral." RMP is not a new tool; it was also implemented after the end of balance sheet reduction in October 2019. In the medium term, to maintain ample reserves, the pace of the Federal Reserve's normalization of balance sheet expansion may be roughly consistent with the central tendency of nominal GDP growth. Under certain assumptions, the steady-state condition is that securities held by SOMA account for about 20%-21% of GDP, and reserves/GDP are approximately equal to 8.7%. **(3) The End of QE: The Federal Reserve May Not Restart QE Before Returning to "Zero Interest Rates"** Interest rates must be lowered to zero or near zero before QE can occur, which is the inherent order of monetary easing. Therefore, not all balance sheet expansions are called QE. The prerequisite for QE is that monetary policy faces constraints at the "zero lower bound" of interest rates. Before reaching the "zero lower bound," lowering interest rates is a more effective policy for stimulating aggregate demand It is inappropriate to reverse the order of importance and ignore the inherent sequence in the policy operation process. This order is a globally universal experience and aligns with the practices of the Federal Reserve since 1913. There are four periods in the century-long history of the Federal Reserve that resemble QE-style balance sheet expansions: the Great Depression from 1929 to 1933, after the United States entered World War II in 1941, after the Lehman Brothers bankruptcy in 2008, and after the impact of the public health event in 2020. All of these occurred after a zero interest rate environment. The Federal Reserve may need to wait for the next crisis to restart QE. The meanings of RMP and QE in terms of asset categories are entirely different. In the realm of conventional monetary policy, interest rates serve as the "weather vane" for the monetary policy stance, and there is no need to overly focus on the Federal Reserve's balance sheet operations. It is even less appropriate to "measure" asset prices using quantitative indicators such as the Federal Reserve's total assets or reserves—similar to before 2008, the Federal Reserve's balance sheet was not an "effective tool" for market analysis. **Risk Warning:** Escalation of geopolitical conflicts; U.S. economic slowdown exceeding expectations; Federal Reserve turning "hawkish" beyond expectations ## Related News & Research - [Isaac Malul: Uncovering key drivers behind tax provision variances](https://longbridge.com/en/news/281318804.md) - [Buffett says he doesn't know if he would cut interest rates if he were at the Federal Reserve](https://longbridge.com/en/news/281187110.md) - [Logan Says Iran War Could Pull Fed Policy in Opposite Directions](https://longbridge.com/en/news/281554679.md) - [Coinbase: Co not becoming a commercial bank, will not be taking retail deposits, will not be engaging in fractional reserve banking](https://longbridge.com/en/news/281569116.md) - [Director Lin-Manuel Miranda will make musical ‘Octet’ into movie](https://longbridge.com/en/news/281577441.md)