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Fed doing a reset Dec 1, 2025?
Executive summary
The Federal Reserve announced it will end the reduction of its securities holdings and begin rolling over maturing Treasury principal starting December 1, 2025 — effectively pausing quantitative tightening — while it kept open the question of further interest-rate cuts at its December meeting (Dec. 9–10) [1] [2]. Minutes and reporting show broad support to halt balance‑sheet runoff but strong disagreement among officials about whether to cut the policy rate again in December [3] [4].
1. What “reset” on Dec. 1 means: a stop to runoff, not a policy‑rate decision
The Fed’s explicit operational change is to “conclude the reduction of its aggregate securities holdings on December 1” and to roll over at auction all principal payments from its Treasury holdings beginning that day — in other words, it will stop letting Treasuries run off and hold its stock of government bonds steady by replacing maturing Treasuries [1] [2]. Reuters likewise summarized the move as the Fed ending the drawdown of its balance sheet and rolling over maturing Treasuries from Dec. 1 [5]. This is a balance‑sheet “reset” in implementation, not an immediate change to the federal‑funds target announced on Dec. 1 [1].
2. Why the Fed is doing it: liquidity signs and reserve concerns
Officials cited tightening money‑market liquidity and falling bank reserve levels as the proximate drivers for stopping runoff, plus broader judgment that reserves are approaching the level the Fed judges “ample” [5] [6]. Meeting minutes and Reuters reporting indicate “almost all” policymakers favored halting reductions effective Dec. 1 to prevent reserves from becoming too scarce [3] [2].
3. Mortgage‑backed securities and Treasury bills: a technical shift
While Treasuries will be rolled over, the Fed said it will maintain its plan to allow up to $35 billion in MBS to be redeemed monthly but will reinvest proceeds from maturing MBS into Treasury bills beginning Dec. 1 — a technical change in composition even as overall securities holdings stop declining [5]. The implementation note and minutes spell out the specific operational instructions to the Open Market Desk [7] [2].
4. Does Dec. 1 mean rate cuts are coming? The Dec. 9–10 meeting remains unsettled
Stopping balance‑sheet reduction does not automatically mean the Fed will cut the policy rate in December. The FOMC lowered the target range in October but minutes show deep division about another cut at the Dec. 9–10 meeting; “many participants” had already ruled out a December cut, and traders pared odds of another move [1] [4]. Reuters and other outlets reported that market expectations for a December rate cut declined after the minutes and subsequent data [4] [8].
5. Markets and forecasts: economists and banks disagree
A Reuters poll showed most economists (about 80% in that poll) expected a 25‑basis‑point cut in December, yet market pricing and some large banks adjusted views as data arrived — for example, Morgan Stanley dropped its call for a December cut after stronger jobs data [9] [8]. The Fed’s minutes and reporting from CNBC and Fortune underline that opinions inside the central bank were split, making a December cut a close call rather than a foregone conclusion [10] [11].
6. What critics and supporters say: tradeoffs and implicit agendas
Advocates of halting runoff argued it would preserve liquidity and allow the Fed to better control short‑term rates; some officials (and commentators) see this as prudent given tightening money markets [5] [3]. Critics — notably some Fed members and external observers — worry that stopping runoff and cutting rates too soon could inflate demand and complicate the fight against elevated inflation, a point raised in news commentary and by “many” policymakers who opposed an immediate further cut [4] [10] [11]. Political pressure for faster easing is referenced in coverage, but explicit partisan motives are discussed mainly in opinion pieces rather than Fed texts [11].
7. Limits of the reporting and what’s not covered
Available sources do not mention any Fed decision on Dec. 1 to change the federal‑funds target rate; they document only the balance‑sheet operational change and the ongoing internal debate about a December rate cut [1] [2]. Detailed modeling of how the rollover will affect longer‑term yields or specific bank reserve projections beyond the qualitative reason (liquidity tightening) is not provided in these sources [5] [6].
8. Bottom line for readers and markets
As of the reporting, Dec. 1 marks a clear operational “reset” to stop quantitative tightening by rolling over Treasuries and adjusting MBS reinvestment — a stabilization of the Fed’s balance sheet [1] [5]. Whether policymakers follow that operational pause with a policy‑rate cut at the Dec. 9–10 meeting remains unresolved: minutes show a divided Committee and markets and major banks vary in their forecasts based on incoming data [2] [4] [8].