Upcoming End of the Fed’s Quantitative Tightening?This Wednesday, October 29, 2025, could mark a decisive turning point for U.S. monetary policy and, by extension, for global markets.
All eyes are on the Federal Reserve (Fed), which is expected to announce a cut to its main interest rate.
But investors are paying even closer attention to another key question: the potential end of Quantitative Tightening (QT) — the process through which the Fed reduces the size of its balance sheet.
1) What is QT, and why might the Fed slow it down again?
Since 2022, the Fed has been implementing QT to gradually withdraw the excess liquidity injected during the post-Covid period.
In practice, this means allowing part of its Treasury and mortgage-backed securities holdings to mature without reinvesting the proceeds.
As a result, the amount of dollars in circulation declines, credit conditions tighten, and global liquidity contracts.
Several signals now point toward a shift in stance.
The U.S. economy is slowing, some regional banks are showing renewed signs of stress, and inflationary pressures are easing.
In this environment, the Fed may conclude that it’s time to ease financial conditions to avoid an excessive economic slowdown.
Ending QT — or even slowing its pace further — would effectively inject liquidity back into the financial system.
This would mean bank reserves rising again, facilitating credit flows and encouraging risk-taking in the markets.
2) A positive impact on risk assets
Historically, each time the Fed stopped shrinking its balance sheet, equity markets rebounded.
The logic is straightforward: more liquidity in the system typically leads to higher asset prices.
A slower QT would likely come alongside lower bond yields and a weaker U.S. dollar — two factors that generally favor stock market rallies and risk asset performance.
This support seems all the more crucial today, as the S&P 500 remains near its all-time high valuations.
The chart below shows the QT program since 2022, with a gradually declining monthly pace since 2024.
3) Jerome Powell’s key message
Finally, Jerome Powell’s speech will be critical.
Markets will react not only to the policy decisions themselves but also to the tone:
• What pace for balance sheet reduction?
• What flexibility in responding to inflation?
• What outlook for 2026?
If Powell hints that the Fed is preparing to end QT, the message will be clear: liquidity is returning, and with it, a renewed appetite for risk across financial markets.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Education
Pre - US Recession Behaviour Recessions and the Fed’s First Rate Cut
Recessions in the United States typically begin after the Federal Reserve cuts interest rates for the first time. On average, a recession starts roughly six months after that initial rate cut—at least since 1981.
This analysis focuses on a recurring pattern that has been observable since September 1973. However, the pattern becomes far clearer before and after the Gulf War recession of 1990. Before that period, the pattern was still present, though individual events occurred almost simultaneously—particularly during the 1973 oil embargo recession and the double-dip recession of 1980–1981. For this reason, the analysis will emphasize U.S. recessions that occurred after 1990.
The Observed Pattern
The pattern I noticed is as follows: prior to the Fed’s initial rate cut, U.S. 10-year Treasury yields (US10Y) typically peaked about 14.25 months earlier, and the U.S. CPI year-over-year rate (USIRYY) also peaked around the same time.
Interest rates generally plateaued for an average of 8.25 months before the first rate cut (this average is based on recessions from 1990–2020). During this plateau phase, US10Y yields either declined further or moved within a narrow range—and the same applies to USIRYY (CPI YoY).
After the Fed’s first rate cut, both interest rates and US10Y yields declined, while USIRYY began to rise. This reaction is logical: as financial conditions ease, inflation tends to pick up again until it eventually peaks and is then suppressed as the economy weakens.
The 1990 Anomaly
However, in 1990 and 2024, a notable anomaly emerged. Following the Fed’s first rate cut, USIRYY did not rise—it stagnated. This can be observed between June 1989 (the Fed’s first cut) and August 1990 (the onset of the Gulf War recession).
What kept inflation sticky and stagnant was that US10Y yields remained elevated, effectively acting as a brake on inflation. In other words, the bond market was doing the Fed’s job—tightening financial conditions without the Fed needing to keep nominal interest rates (USINTR) high.
But this balancing act could not last forever. By late July 1990, US10Y yields dropped below their February 1990 level, which allowed inflation to spike briefly before following interest rates and yields lower after November 1990.
The Pattern Repeats (2024–2025)
This pre-1990 Gulf War recession pattern is now re-emerging. In September 2024, the Fed cut rates for the first time. As if on cue, US10Y yields had peaked roughly 11 months earlier, and inflation had already fallen significantly.
By the end of September 2024:
US10Y yields: 3.8%
Fed funds rate: 5.0%
USIRYY: 2.4%
Fast-forward one year to September 2025:
The Fed cut rates again, down to 4.25%.
USIRYY stood at 3.0%, about the same level seen when interest rates were between 5.25–5.50%.
Why has inflation remained relatively low despite lower policy rates? The answer lies in US10Y yields, which were 9.81% higher in September 2025 than a year earlier. Once again, elevated long-term yields are acting as a brake on inflation—essentially allowing the Fed to appear dovish while the bond market maintains tight financial conditions.
Implications
It is only a matter of time before this balancing act breaks down and a recession begins anew. While many subtle differences exist between the current cycle and the 1990 Gulf War period, the technical similarities are striking—especially regarding the interplay between lower short-term rates, elevated long-term yields, and sticky inflation.
Final Thoughts
I am not a professional macroeconomic analyst, and there are certainly far more experienced minds on this topic. I simply wanted to share this observation in the hope that others might find it useful for their own analysis.
To complement this study, I’ve created two indicators:
Financial Conditions Brake Index (FCBI) – US10Y Brake on USIRYY
Brake Pressure (FCBI – USIRYY)
I will publish these indicators and their descriptions soon. If you don’t find them immediately after reading this analysis, please be patient—I’ll upload them as soon as possible.
This is strictly a macroeconomic analysis, not a trading signal. However, monitoring how this situation evolves could offer valuable insight into what lies ahead. I will not attempt to predict the exact timing of the next recession, but current conditions appear precarious: interest rates are declining, inflation remains sticky, and the elevated US10Y yields seem to be the only factor keeping a recession at bay.
If you wish to recreate this chart, add the following comparisons:
USREC, US10Y yields, USINTR, and USIRYY.
RRP Exhaustion and TGA Rebuild Signal a Tightening Cycle1. Overview
Liquidity conditions across the U.S. financial system have entered a tightening phase once again.
The U.S. Treasury General Account (TGA) has surged from its June low of around $200 billion to roughly $905 billion today, while the Federal Reserve’s Reverse Repo Facility (RRP) has collapsed to just $2 billion, effectively empty.
This shift marks the end of the liquidity buffer that had supported markets over the past year, and the consequences are now visible across risk assets, particularly Bitcoin, which has been trending lower since the TGA bottomed in June.
2. Liquidity Mechanics
The interaction between the TGA and RRP is central to understanding current market dynamics.
- When the Treasury rebuilds its TGA, it issues short-term bills and absorbs cash from the financial system.
- During 2023 and early 2024, this liquidity drain was largely offset by reductions in the RRP balance, as money market funds reallocated idle liquidity into T-bills.
- That mechanism kept overall market liquidity relatively stable — the RRP served as a shock absorber.
Today, that buffer is gone. With RRP nearly depleted, any additional TGA build now draws directly from the banking system’s reserves, tightening liquidity conditions beneath the surface.
3. Liquidity Inflection and Market Correlation
The TGA bottomed in June at around $200 billion, a point that coincided almost perfectly with the Bitcoin top near its recent cycle highs.
This correlation is not coincidental, it reflects the direct relationship between system liquidity and speculative risk demand.
As Treasury began rebuilding its cash balance, liquidity was redirected away from markets and into government accounts.
That liquidity drain aligns with the ongoing weakness in high-beta assets such as crypto and small caps, despite relatively stable macro data and policy expectations.
4. Current Liquidity Regime: Neutral in Level, Tight in Flow
At the aggregate level, liquidity may appear neutral — the increase in TGA has been offset by the decline in RRP, keeping the total size of Fed liabilities roughly unchanged.
However, the composition of that liquidity has deteriorated.
- The RRP is now empty, meaning the system no longer has an easy liquidity source to fund further Treasury accumulation.
- TGA is high and rising, effectively absorbing capital that could have supported credit or speculative flows.
- The bank reserve base is beginning to feel the pressure, tightening funding conditions quietly but steadily.
The result is a liquidity regime that is not collapsing but no longer expanding, which explains why risk assets are stagnant. There is no incremental liquidity flowing down the risk curve.
5. Fiscal and Structural Headwinds
The current U.S. government shutdown further complicates the outlook.
It restricts Treasury operations, delays issuance flexibility, and slows the recycling of liquidity back into the private sector. This prevents the RRP from being refilled and reinforces the liquidity stasis across markets.
In other words, the system is locked:
- The TGA is high and still rising.
- The RRP is empty.
- Reserves are now the adjustment variable, meaning further tightening could emerge if the Treasury continues to absorb cash.
6. Market Implications
- Liquidity exhaustion is becoming visible in market behavior.
- The TGA rebuild represents a clear liquidity drain as it is no longer offset by RRP balances.
- BTC’s reversal from its June peak reinforces the correlation between Treasury liquidity cycles and speculative risk performance.
The neutral aggregate liquidity masks an underlying structural tightening, there is no new money reaching markets.
Until the TGA begins to decline again, releasing liquidity back into the system, the bias for risk assets remains constrained. Markets are likely to remain choppy, with limited upside momentum due to the absence of fresh liquidity inflows.
7. Conclusion
Liquidity conditions are neutral in total but tight in structure. The RRP’s depletion removes the last line of defense against Treasury-driven liquidity absorption.
With the TGA near $905 billion and still rising, risk assets are operating in an environment where no new liquidity is entering the system, only being recycled internally.
The correlation between June’s TGA low and Bitcoin’s top highlights just how sensitive speculative assets are to liquidity cycles.
Until Treasury spending or Federal Reserve policy shifts inject new reserves into the system, market liquidity will remain capped and so will risk appetite. $JPIRYY -Japan CPI (September/2025)ECONOMICS:JPIRYY
September/2025
source: Ministry of Internal Affairs & Communications
- Japan’s annual inflation rate rose to 2.9% in September 2025 from August’s 10-month low of 2.7%.
The increase was driven by the first rise in electricity prices in three months (3.2% vs -7.2%) and a rebound in gas costs (1.6% vs -2.7%), after the expiry of temporary government measures launched to offset summer heat.
Price growth also persisted across most categories, including housing (1.0% vs 1.1%), clothing (2.5% vs 2.9%), transport (3.0% vs 3.0%), household items (1.0% vs 2.0%), healthcare (1.2% vs 1.3%), recreation (2.0% vs 2.3%), communications (6.7% vs 7.0%), and miscellaneous goods (0.7% vs 1.3%), while education costs fell further (-5.6% vs -5.6%).
On the food side, prices increased 6.7% yoy, easing from a 7.2% rise in August and marking the softest gain in four months, largely due to the smallest rise in rice prices in a year (49.2%) amid Tokyo’s continued efforts to contain staple food costs.
Core inflation came in at 2.9%, matching consensus and rising from the prior 2.7%. $CNGDPYY - China GDP (Q3/2025)ECONOMICS:CNGDPYY
Q3/2025
source: National Bureau of Statistics of China
- China’s economy expanded 4.8% year-on-year in Q3 2025, down from 5.2% in Q2,
marking its slowest pace since Q3 2024.
While in line with market expectations,
the GDP growth has lost momentum after a strong start to the year, pressured by U.S. trade tensions, a prolonged property slump, and soft consumer demand.
September data showed retail sales in China rose at their slowest pace in a year despite ongoing consumer subsidy programs, while the jobless rate edged down but remained near August’s six-month high.
Industrial output, however, grew at its fastest pace in three months ahead of Golden Week.
On the trade front, exports and imports beat forecasts as firms pushed into new markets and domestic demand was boosted by holiday spending.
China’s statistics bureau cautioned that risks and external headwinds persist, with the recovery’s foundation still fragile.
Still, it said that 5.2% growth in the first nine months lays a “solid foundation” for meeting a full-year target of around 5%. $CNIRYY -China CPI (September/2025)ECONOMICS:CNIRYY
September/2025
source: National Bureau of Statistics of China
- China’s consumer prices dropped 0.3% yoy in September 2025,
steeper than market estimates of a 0.1% decline but slightly less than
a 0.4% fall in the previous month.
Food prices declined further (-4.4% vs -4.3% in August), recording the strongest contraction since January 2024, amid broad-based falls across categories, with pork prices down further due to abundant supply ahead of the Golden Week holidays,
lower production costs, and weak demand.
In contrast, non-food inflation quickened (0.7% vs 0.5%), supported by ongoing consumer trade-in schemes to bolster consumer demand, with more increases in housing (0.1% vs 0.1%), clothing (1.7% vs 1.8%), healthcare (1.1% vs 0.9%), and education (0.8% vs 1.0%).
Meanwhile, transport costs fell at a slower pace (-2.0% vs -2.4%).
Core inflation, which excludes food and energy, rose 1.0% yoy, the highest in 19 months, after August's 0.9% gain.
On a monthly basis, the CPI inched up 0.1%, missing forecasts of 0.2% after remaining flat in August. Short 
$EUIRYY - Europe CPI (September/2025)ECONOMICS:EUIRYY
September/2025
source: EUROSTAT
- Euro area consumer price inflation rose to 2.2% in September 2025,
up from 2.0% in the previous three months, moving slightly above the European Central Bank’s 2.0% mid-point target, according to preliminary data.
The increase was driven mainly by a smaller decline in energy costs, which fell just 0.4% compared with a 2.0% drop in August.
Services inflation edged up to 3.2% from 3.1%, while prices for food, alcohol and tobacco rose at a slower 3.0% versus 3.2% previously, reflecting weaker unprocessed food inflation.
Non-energy industrial goods inflation remained unchanged at 0.8%. Meanwhile, core inflation—which excludes energy, food, alcohol, and tobacco—was stable at 2.3%, holding at its lowest level since January 2022. Shutdown: Is Friday’s October 3 NFP Report at Risk?The shutdown that began on October 1 in the United States could disrupt the release of key economic data. The highly anticipated jobs report (NFP), scheduled for October 3, may be suspended or delayed if the federal government remains closed. This uncertainty could weigh on financial markets already seeking clarity.
The fourth trading quarter began this week, and investors are projecting October’s trend as the S&P 500 delivered a solid bullish performance in Q3. First-tier fundamentals are driving the major market moves, particularly those affecting the Federal Reserve’s monetary policy outlook.
As every first Friday of the month, the US labor market report (NFP) is scheduled for this week, Friday, October 3. This macroeconomic figure is the dominant fundamental driver of the week. Let’s recall that the Fed cut the federal funds rate in September as the US economy created almost no jobs in the past five months.
1. The US labor market has been slowing significantly since the beginning of the year, with the Fed’s alert threshold set at 4.5% unemployment
The main chart (top of page) shows the US unemployment rate, which is trending higher. In its latest macroeconomic projections, the Fed indicated that its unemployment “alert level” is 4.5% of the labor force.
Friday’s NFP (October 3) will update this unemployment rate, currently at 4.3%. Any uptick would significantly increase the probability of a jumbo Fed cut at the October 29 monetary policy meeting.
The charts below (source: Bloomberg) illustrate the gradual deterioration of the US labor market:
2. At this stage and before the NFP, the probability of a jumbo Fed cut on Wednesday, October 29 is minimal
A jumbo Fed cut means lowering the federal funds rate by 50 basis points (0.50%). Only further deterioration in the labor market revealed in the October 3 NFP report could raise the probability of such a scenario.
The table below, from the CME Fed Watch Tool, shows the implied probability of Fed action at its upcoming policy meetings:
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Long 
Long 
Macro Dashboard: Growth, Inflation, and Market SentimentThis set of three charts provides a concise overview of the U.S. macroeconomic landscape, grouped into three key categories:
Market Sentiment
NASDAQ, VIX
Captures risk appetite and volatility in equity markets. NASDAQ reflects growth and tech-sector momentum, while VIX indicates fear and uncertainty.
Economic Activity
Retail Sales, GDP YoY, ISM PMI, Unemployment Rate
Tracks the pulse of the real economy. Retail sales and ISM PMI show consumer and business activity, GDP YoY highlights overall growth, and unemployment measures labor market strength.
Monetary Policy & Inflation
Fed Funds Rate, Core PCE YoY, Core CPI YoY, 10Y Treasury Yield
Monitors the Federal Reserve’s policy stance and inflation dynamics. Core PCE and Core CPI are key inflation measures, while the 10-year yield reflects market expectations for growth and policy.
Together, these charts help visualize how economic fundamentals, inflation, and market sentiment interact — a practical dashboard for understanding U.S. macro conditions and their impact on financial markets. QE and YCC: What does it all mean?ECONOMICS:USCBBS
CBOT:ZB1! CBOT:ZN1! CME_MINI:NQ1!
There is growing market speculation that the Fed may tolerate inflation above 2% for longer, consistent with its Average Inflation Targeting (AIT) framework introduced in 2020.
This also implies that real rates i.e., nominal rates minus inflation are likely to fall significantly. Given this, we anticipate gold to continue trending higher as the U.S. dollar's purchasing power erodes with mounting debt, persistently higher inflation, and falling real yields.
What is QE?
Quantitative Easing (QE) refers to the Fed injecting liquidity into financial markets by purchasing large quantities of assets such as Mortgage-Backed Securities (MBS) and U.S. Treasuries, especially during periods of economic stress like the Global Financial Crisis (2007–2008) and the COVID-19 downturn.
How Does QE Work?
Asset Purchases: The Fed buys large volumes of Treasuries and MBS from financial institutions.
Balance Sheet Expansion: These purchases expand the Fed's balance sheet (now hovering near $6.6 trillion, per FRED).
Increased Liquidity: Banks receive excess reserves in exchange, increasing system-wide liquidity.
Lower Interest Rates: Demand for bonds pushes prices higher and yields lower.
Economic Stimulus: Lower borrowing costs promote credit creation, investment, and consumer spending.
However, a key drawback of QE is asset price inflation. As seen between the GFC and the COVID-19 pandemic, low rates and excess liquidity drove significant appreciation in equities, housing, and other financial assets, even while consumer inflation remained near target.
QE vs. Stimulus Checks
If traditional interest rate policy is Monetary Policy 1 (MP1), then QE is MP2. Stimulus checks, or government handouts, fall under MP, a fusion of monetary and fiscal policy.
While QE primarily injects liquidity into financial institutions, stimulus checks inject purchasing power directly into households. This approach where the Treasury issues debt and the Fed purchases that debt, stimulates demand for real goods and services. We saw this during the post-COVID recovery, which brought a sharp rebound in consumer activity but also a surge in inflation, reaching a peak of 9.1% in June 2022 (CPI YoY).
QE impacts Asset Price Inflation
Stimulus Checks impact Goods & Services Inflation
What is YCC? (Yield Curve Control)
Yield Curve Control (YCC) is a policy whereby the central bank buys government debt across various maturities to control yields not just at the short end (via rates), but across the entire yield curve.
A prime example is the Bank of Japan, which has used YCC since 2016 to anchor 10-year JGB yields near zero. The Fed has not formally adopted YCC, but market participants believe it may lean in that direction in the future especially during crises where long-end rates rise undesirably. Mounting US debt and rising long end yields may prompt the Fed to step in and adopt YCC like BoJ has done previously.
Front-End Control: Managed via policy rates
Long-End Control: Central bank buys 5Y, 10Y, 20Y, 30Y Treasuries to anchor yields
Potential Risks of YCC:
Credibility Risk: If inflation rises while the central bank suppresses yields, it may lose market trust.
Currency Pressure: Artificially low yields may trigger speculative pressure on the currency (as seen with the yen under BoJ YCC).
We’ve kept this concise and digestible for now, but there’s more to unpack—especially on the long-term implications of coordinated monetary-fiscal policy (MP3), debt sustainability, and central bank credibility.
The Fed’s balance sheet chart shows how Fed’s balance sheet has increased:
Aug 1, 2008: $909.98B
Jul 1, 2017: $4.47T
Aug 1, 2019: $3.76T
Feb 1, 2020: $4.16T
Mar 1, 2022: $8.94T
Aug 1, 2025: $6.61T
Note that this is not just a US phenomenon. It is a world wide phenomena looking at many of the developed and emerging markets. The Debt to GDP ratios are increasing, Central Banks balance sheets are rising in tandem with rising government debt.
With the rate cutting cycle starting, it is a matter of time that we also see QE restarting.
If you’d like us to dive deeper into any of these topics in future educational blogs, let us know. We're happy to build on this foundation with more insights.
