The Fed Closes Quietly Quantitative Tightening and Starts "Managed Expansion" – What Changes at Tomorrow's Meeting

[Igor Pereira]

While retail and financial media remain obsessed with the decision to cut interest rates, Wall Street's sharpest minds are focused on a much deeper structural change that should take place at the FOMC meeting on December 10.

By Igor Pereira, Financial Market Analyst, Junior Member WallStreet NYSE

The real news is that the Federal Reserve authorities must announce the start of the "Reserve Management Purchases", a technical maneuver that effectively closes the Quantitative Tightening (QT) and starts the acquisition of US$20 to US$40 billion in monthly Treasury (T-bills) securities from January 2026. They will not call this Quantitative Easing (QE), but mathematics speaks for itself: we are facing an injection of disguised liquidity.

At the upper limit of the projections, this new policy will inject up to $480 billion in fresh liquidity annually into the financial system. This movement is a direct response to the stress behind the bank, where the reserves have just touched the $3 trillion mark, the lowest level since the crisis of the Repo market of 2019. The predictions of large houses vary, revealing the uncertainty of the moment, but confirming the direction: Evercore ISI projects US$ 35 billion monthly, UBS bets US$ 40 billion, while Goldman Sachs expects a net value of US$ 20 billion. The spread in the predictions shows doubt about the size, but the direction reveals the clear intention to replenish the system.

After three years of reducing the balance sheet, which drained $2.4 trillion from the markets, the tide is about to turn. The mechanism designed by the Fed is elegant and offers "possible negative" policy: the mortgage-backed securities (MBS) that are winning, at a rate of $15 to $19 billion monthly, will be reinvested in short-term T-bills. This shortens the duration of the Fed's portfolio and expands liquidity, allowing Powell to claim he's not printing money, even while fixing the financial plumbing.

The Repo Market Alert and the New Risk Calculation

The Repo market already knows what's going on. SOFR rates have repeatedly violated the roof of the Fed policy corridor, a clear sign that the banking system is screaming that the reserves have gone from "abundant" to "appropriate" only, with the impending scarcity. Mark Cabana of Bank of America warns that investors are underestimating the impact of this ad: a value above $40 billion would signal aggressive accommodation, while below $30 billion would indicate restriction. For risk assets, this changes the entire valuation calculation; for inflation hawks, it raises the spectrum of a serious policy error. The era of tightness is over; the age of managed expansion begins tomorrow. Full attention to implementation notes.

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