Fed end QT: Federal Reserve ends tightening program

Fed end QT marks major policy shift as liquidity support returns

In a major shift in U.S monetary policy, the federal reserve has officially ended its three year quantitative tightening (QT) program, marking one of the most significant pivots since the post pandemic economic recovery. The move signals a transition from balance sheet reduction to liquidity stabilization as the central bank seeks to maintain healthy banking system and guide inflation back towards target levels.

Source: X

Fed halts balance sheet reduction after shrinking $2.2 Trillion

The federal reserve has stopped cutting its balance sheet, ending a QT cycle that ran from 2022 to 2024. During this period, the fed allowed assets to roll off without reinvestment reducing:

• $1.6 trillion in U.S treasuries

• $600 billion in mortgage backed securities (MBS)

This marks one of the largest balance sheet contractions in its history and reflects the central banks attempt to reverse the excessive liquidity created during covid era stimulus.

Bank Reserves return to safe and stable levels

With QT ending, the Fed signaled the bank reserves have reached a comfortable and safe level reducing the risk of stress in short term funding assets. This is critical because excessively low reserves can trigger tightening in the repo market– a flashpoint to avoid after the volatile 2019 trading volume squeeze.

Market Expect a December rate cut as odds hit 88%

Following the policy shift, traders now see an 88% probability of a 25 bps rate cut in December. The market confidence has strengthened due to:

• Easing inflation pressures

• Steady labor market cooling

• The Fed pivoting away from aggressive tightening

A rate cut would mark the first step towards a more accommodative environment that could support risk assets, lending activity and broader market funding conditions.

Crypto Market Reacts as Fed Sparks New Liquidity Wave

The Federal Reserve’s decision to end its three-year QT cycle and shift toward liquidity support is being viewed as a bullish catalyst across the crypto assets. Traders expect improved dollar funding, higher risk appetite, and a potential December rate cut—all factors that typically boost digital assets.

With bank reserves stabilizing and preparing to add liquidity through T-bill purchases, Bitcoin and altcoins often benefit from easier financial conditions, stronger capital flows, and renewed market momentum.

If its pivot develops into a broader easing cycle, analysts anticipate increased inflows into crypto, stronger demand for risk assets, and a more favorable macro backdrop heading into the next phase.

Fed to boost liquidity through T-Bill purchases

Instead of shrinking its balance sheet further, the Federal Reserve will shift to purchasing treasury bills (T-bills) to keep reserves from failing. This approach allows the Fed to:

• Stabilize the level of reserves in the banking system

• Maintain flexibility in its balance sheet composition

• Prevent tightening from resurging unintentionally

This move is widely seen as a strategic transition to a steady state balance sheet policy

Conclusion

The Fed’s decision to end its three year Quantitative tightening program is a major turning point in U.S monetary strategy. With bank reserves now stable,

Expectations for a December rate cut elevated, and the central bank shifting to T-bill purchases to maintain liquidity, markets are preparing for a more supportive policy environment.

The upcoming Decision will reveal whether this pivot evolves into a full easing cycle, shaping the economic landscape in the months ahead.