🥛Fed QT is dead. What’s next? 🏦

GM. This is Milk Road Macro, the newsletter that’s better at spotting fake QE than your aunt is at spotting fake handbags.

Here’s what we got for you today:

✍️ Everything you need to know as QT comes to an end
🎙️ The Milk Road Macro Show: The Dollar System Is Breaking & Gold Is Becoming Money Again w/ Andy Schectman
🍪 Michael Burry has bet against Tesla

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Prices as of 8:00 AM ET.

EVERYTHING YOU NEED TO KNOW AS QT COMES TO AN END

It’s official.

After nearly four years, the Federal Reserve’s Quantitative Tightening (QT) program has come to an end.

You may now be bombarded with people telling you that Quantitative Easing (QE) is about to start.

And this means your bags will instantly teleport to the moon.

But let’s discuss what this really means for risk asset markets.

What’s happening this week?

What’s next?

And are we about to see “real QE”?

Let’s take a look…

So, what’s happening this week?

The Federal Reserve officially stopped its QT program (balance sheet reduction) as of yesterday (December 1).

The Fed had been reducing its balance sheet since 2022.

This means allowing bonds that it holds on its balance sheet to mature without reinvesting the proceeds - this is the reverse of QE and is effectively a “liquidity drain” from markets.

Source: TradingView

So, QT has now ended, and the Fed balance sheet should remain flat from here on.

I see people claiming that the end of QT is a mega-bullish catalyst for risk asset markets.

But, what does this actually mean for markets?

Not much really.

Balance sheet reduction has only been running at a teeny tiny pace since March 2025, so the “net positive liquidity change” from stopping QT is so small it’s basically unnoticeable, in the grand scheme of things.

It could be argued that this is somewhat of a bullish “signal” to markets, because it essentially means the “era of tightening” is now over.

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EVERYTHING YOU NEED TO KNOW AS QT COMES TO AN END (P2)

So, what’s next?

The Fed will be forced to begin expanding its balance sheet again at some point.

This is because it will need to ensure the banking system has adequate reserves as the economy grows (I explained this in detail here and here).

According to most bank analysts, this may come very soon - potentially as early as Q1 2026.

This week, Goldman Sachs rates strategist William Marshall said he believes balance sheet expansion will return in January 2026.

He thinks the Fed will be buying Treasury bills at a pace that would see the balance sheet increase by about $20bn per month (or $240bn per year).

Source: Goldman Sachs

This is not really “QE”

This expected balance sheet expansion will be nothing like the balance sheet expansion that occurred in 2020 and 2021, which was incredibly stimulative and powered risk asset markets higher.

Arguably it shouldn’t even be called “QE” - it’s “reserve management purchases” (people will argue over these semantics, which is fair enough, but I wouldn’t personally call it “QE” - because it’s such a loaded term).

There are two fundamental reasons why this balance sheet expansion will be very different:

The pace will be tiny - just $20bn per month, compared with more than $800bn per month between March 2020 and June 2020.
The Fed will be buying Treasury bills, not Treasury coupons. This is an important distinction. Buying bills does not “remove duration risk” from the market, and this is the key “asset price boosting power” of previous rounds of “real QE”.

I explained this in BIG detail here, if you are interested in learning more.

The main takeaway is that the overall direct effect on risk asset markets from this balance sheet expansion will be minimal.

This isn’t 2020 all over again.

This is not the “Big Print” you are looking for.

Will we actually see “real QE” again?

Famous boxer Mike Tyson once said:

“Everybody has a plan until they get punched in the mouth.”

The Fed has a “plan”, but it will inevitably get “punched in the mouth” at some point.

It’s probably almost certain that we will eventually see “real QE” (massive purchases of Treasury coupons) again at some point in the future.

But it’s incredibly unlikely that this will occur without some kind of catalyst.

This could be:

A Treasury market “freak-out” with yields surging quickly (this is probably the most likely in the medium-term)
A serious war
A pandemic
A major recession
A systemic banking crisis

It is only a major catalyst on the scale of the scenarios above that will cause the Fed to engage in “real QE” again.

In fact, the odds of “real QE” returning soon are probably falling.

Treasury Secretary Scott Bessent is considered “hawkish on the balance sheet”.

He has repeatedly criticized the Fed’s post-2008 and pandemic-era monetary policies, arguing that large-scale balance sheet expansion has had damaging side-effects, including inflating asset prices, contributing to inequality, and allowing the Fed to act as “a backstop for asset owners”.

Bessent is heavily involved with picking the next Fed Chair.

He has been leading the interview process - and has reportedly made the balance sheet a key subject during candidate interviews.

You would think that this would mean the next Fed Chair would be much more reluctant to switch on “turbo QE” in the future.

Wrapping up

It’s the end of the road for the Fed’s four-year-long QT regime.

And likely soon, the Fed’s balance sheet will start to expand again as the central bank starts to purchase Treasury bills.

I don’t want to overly downplay this - it isn’t a bad thing for risk assets.

If you isolate this one specific action, it’s “liquidity positive” on the margin.

But, I’m just trying to bring some grounded reality to this topic.

The “stimulative effects” of this upcoming balance sheet expansion will likely be so minimal it’s almost not even worth thinking about.

That won’t stop the QE narrative train from intensifying across social media.

But just remember - this isn’t 2020 all over again (unless something changes).

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