JPMorgan Expects the Fed to End Quantitative Tightening This Month Amid Liquidity Strains

Strategists at JPMorgan Chase & Co. and Bank of America Corp. expect the Federal Reserve to halt its $6.6 trillion balance sheet reduction this month, ending a liquidity-draining process that has shaped markets since 2022, Bloomberg reported Thursday.

Funding Stress Pushes Fed Toward Ending Balance Sheet Reduction

The publication’s report noted that both Wall Street giants accelerated their forecasts for the conclusion of the Fed’s quantitative tightening (QT) program — the systematic runoff of Treasury and mortgage-backed securities — citing a sharp uptick in dollar funding costs.

JPMorgan and Bank of America had previously projected that QT would end in December or early 2026. The shift comes as borrowing costs in repo and funding markets rise, prompting concerns over reserve scarcity in the banking system.

“Money markets at current or higher levels should signal to the Fed that reserves are no longer ‘abundant,’” Bank of America strategists Mark Cabana and Katie Craig said in a note Thursday, according to Bloomberg’s Alex Harris.

Harris further said that JPMorgan’s Teresa Ho and her team noted that market frictions have intensified as the Fed’s reverse repo facility empties, suggesting tightening liquidity conditions. “Markets have been operating with much more frictions,” the strategists wrote, adding that these stresses likely influenced the timing revision.

Fed Chair Jerome Powell hinted earlier this month that the central bank is nearing the “ample” reserve level — the minimum needed to avoid market disruptions. The Fed may approach that point in the “coming months,” Harris quoted Powell saying, signaling an imminent pause in the runoff.

The policy shift is expected to coincide with next week’s Federal Open Market Committee (FOMC) meeting in Washington, where officials will also discuss reducing interest rates to a target range between 3.75% and 4%. Analysts at TD Securities and Wrightson ICAP have similarly brought forward their projections for QT’s conclusion, while Barclays and Goldman Sachs expect it to end later.

The broader backdrop points to growing concerns over U.S. fiscal dynamics, as the nation’s debt surpassed $38 trillion this week — a record milestone that adds pressure on policymakers managing both liquidity and borrowing costs.

FAQ 💡

• **What is quantitative tightening (QT)?**Quantitative tightening is the Federal Reserve’s process of reducing its balance sheet by allowing bonds to mature without reinvestment, effectively removing liquidity from markets.
• **Why are JPMorgan and BofA expecting QT to end now?**Both banks cited rising funding costs and signs of reserve scarcity as indicators the Fed may soon halt balance sheet reduction.
• **When will the Fed likely announce the end of QT?**The Federal Reserve is expected to address QT during next week’s policy meeting in Washington.
• **How does U.S. debt factor into this?**The national debt surpassing $38 trillion highlights fiscal pressures that may influence monetary policy and liquidity management.