Fed’s Quantitative Tightening May End Sooner Than Expected as Market Strains Emerge

Bank of America and JPMorgan have revised their forecasts, now predicting the Federal Reserve will halt quantitative tightening as early as next week. This marks a sharp pivot from prior expectations of a December pause or even an extension into 2026. The shift follows acute stress in dollar funding markets, where borrowing costs have surged beyond anticipated levels.

The Fed's balance sheet reduction—designed to drain excess liquidity from Treasuries and mortgage-backed securities—appears to be testing market limits. "Money markets at current or higher levels should signal to the Fed that reserves are no longer 'abundant,'" wrote Bank of America strategists Mark Cabana and Katie Craig. JPMorgan's Teresa Ho highlighted growing friction in markets, noting the rapid depletion of the Fed's reverse repo facility as a critical warning sign.

Chair Jerome Powell telegraphed the shift earlier this month, stating the runoff WOULD cease when reserves reach "somewhat above" ample levels. Traders interpreted this as a clear signal: the Fed is preparing to avert a liquidity crisis. Other institutions like TD Securities and Wrightson ICAP have similarly brought forward their timelines to October, while Barclays and Goldman Sachs anticipate a slightly later pause.