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.




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