The Federal Reserve announced it would cut its monthly short-term Treasury purchase scale (RMP) to approximately $25 billion, a reduction far exceeding prior Wall Street expectations and catching markets off guard. This decision marks an acceleration in the exit from the liquidity injection plan launched by the Fed at the end of last year.
According to the New York Fed's Open Market Desk website, the aforementioned reserve management bond purchases are scheduled to be executed during the monthly cycle ending May 13, alongside approximately $15.5 billion in reinvestment purchases. Compared to the monthly purchase pace of about $40 billion when launched in December last year, this reduction reaches nearly 40%, significantly stronger than market expectations.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/275dd451-9afb-4942-97e3-125f524a32c5.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/275dd451-9afb-4942-97e3-125f524a32c5.png"/>
(Details of New York Fed Treasury Operations)
This announcement has a direct impact on the short-term financing market. Since last December, the Federal Reserve has cumulatively purchased approximately $217 billion in Treasury bills (including reinvestment purchases), effectively maintaining stable operations in the financing market.
Market participants had generally expected that the Fed would maintain a cautious pace and exit gradually amidst the lingering fluctuations in reserves caused by the U.S. tax filing season.
<h2>Reduction Exceeds Expectations; Analysts Say Markets Have Passed the Toughest Phase</h2>
Wall Street strategists had originally expected the Fed to contract the program slowly and cautiously, but this announcement clearly deviated from that expectation.
Gennadiy Goldberg, Head of US Rates Strategy at TD Securities, stated: &#34;Given the Fed's repeated emphasis on a gradual reduction, this speed is indeed faster than market expectations. They clearly believe the market has passed the most stressful phase.&#34;
Roberto Perli, an official at the New York Fed responsible for managing the Fed's trillions of dollars in securities portfolio, co-authored a blog post with colleagues last month indicating that the monthly purchase pace might be &#34;significantly cut,&#34; and noted that the reduction process during the transition period from mid-April to mid-May might be &#34;relatively gradual&#34; to address uncertainty and other factors.
However, the actual magnitude of the reduction in this announcement clearly exceeds the scope implied by that statement.
<h2>Project Origin: Liquidity Top-up After Suspension of Balance Sheet Normalization</h2>
The launch of this plan stems from a significant shift in the Federal Reserve's monetary policy operations. In December 2025, the Fed suddenly halted the balance sheet normalization process (i.e., quantitative tightening) and instead injected reserves into the financial system by purchasing short-term Treasury bills with remaining maturities of less than one year.
In December last year, the Fed launched Treasury bill purchases at a pace of approximately $40 billion per month, aiming to alleviate upward pressure on short-term interest rates. Fed Chair Powell stated at the time that the Fed was &#34;front-loading&#34; purchases to ensure ample reserves during the April tax season.
<h2>Tax Season Disruptions and Reserve Outlook</h2>
Capital flows generated by the tax season form an important backdrop for the Fed's current decision. This week, U.S. individual income tax payments are expected to cause significant fluctuations in reserve balances and notable volatility in the overnight market, which was also the main reason markets previously expected the Fed to act conservatively.
Roberto Perli pointed out that tax payments are expected to cause significant swings in the Treasury General Account (TGA) and reserve balances, with the low point likely occurring in late April—a judgment reflected in the Federal Open Market Committee meeting minutes from March 18-19.
Perli estimated in his blog that between late April and September, reserve levels will remain roughly comparable to the end-of-2025 levels, hovering around $3 trillion.

.NDX

From April to May, the Federal Reserve reduced its monthly bond purchase scale from the previous $40 billion to $25 billion. Most Wall Street institutions expected a monthly reduction of $5-10 billion, but the actual pace exceeded market expectations

- The Federal Reserve announced a reduction in monthly short-term Treasury bill purchases to approximately $25 billion, exceeding Wall Street's expectations and marking a rapid exit from its liquidity injection program initiated last year.  
- This decision is expected to have a direct impact on the short-term financing market, as the Fed has purchased around $217 billion in Treasury bills since December, stabilizing financing conditions.  
- Analysts noted that the faster-than-expected reduction indicates the market has surpassed its most challenging phase, despite previous cautious forecasts surrounding the tax season's impact on reserve balances.

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Fed Exceeds Expectations by Slashing RMP, Cutting Monthly Bond Purchases by Nearly 40% to $25 Billion