Fed QT End in December 2025 and Analysis of Potential QE Pivot in 2026

The Federal Reserve has officially confirmed ending Quantitative Tightening (QT) effective December 1, 2025, reducing its balance sheet from a peak of $8.97 trillion to approximately $6.56 trillion as of November 2025 [1][11]. This move addresses growing money market stress, evidenced by an 18 basis point surge in the Secured Overnight Financing Rate (SOFR) [12]. However, claims of an imminent January 2026 pivot to Quantitative Easing (QE) lack official Fed confirmation, with market expectations centered on potential rate cuts (73% probability of December cut per CME FedWatch) rather than QE expansion [3][4].

Economic indicators present a dual challenge: unemployment rose to 4.4% (highest in four years) in September 2025, while core inflation remains above the Fed’s 2% target (3.3% CPI, 3.4% PPI) [5][6]. Historical precedent shows mixed results from QE: the 2008 program led to slow market recovery, while the 2020 QE triggered an immediate bull run but subsequent inflation surge [10][15].

1. Tension Between Stimulus and Inflation
   : The Fed faces a trade-off between addressing rising unemployment and containing persistent inflation, making a QE pivot risky amid current price pressures.
2. Market Focus Misalignment
   : Reddit claims of a January QE pivot contrast with market expectations of rate cuts, highlighting a disconnect between retail investor sentiment and institutional forecasts.
3. Historical Variability
   : QE’s impact on asset prices depends on context—2008’s slow recovery vs.2020’s rapid gain suggests no guaranteed bull run from future QE.
4. Liquidity vs.Credibility
   : Ending QT reduces money market volatility but political pressure for QE risks eroding Fed independence and long-term credibility [17].

• Inflationary Pressure
  : Implementing QE in a high-inflation environment could lead to stagflation, as warned by market analysts [16].
• Fed Independence
  : Political interference (e.g., Trump administration pressure) to ease monetary policy may undermine the Fed’s ability to combat inflation [17].
• Market Disappointment
  : If the Jan QE pivot fails to materialize, retail investors expecting a bull run may face losses.

• Reduced Money Market Volatility
  : The QT end is likely to lower short-term funding costs and stabilize liquidity conditions [12].
• Rate Cut Benefits
  : A December rate cut (73% probability) could support bond prices and reduce borrowing costs for consumers and businesses [3].
• Potential Asset Gains
  : If QE is implemented, historical data suggests asset prices may rise, though inflation risks could limit gains [15].

• Fed will end QT in December 2025.
• Balance sheet size as of November2025: ~$6.56 trillion.
• September2025 unemployment rate:4.4%.
• Core CPI (latest):3.3%, core PPI:3.4%.
  -73% market probability of December rate cut.

• January2026 QE pivot (no official Fed statement or explicit analyst timeline).