Fed Decision Preview: Balance Sheet Expansion Signals More Important Than Rate Cuts

According to TechFlow on December 9, citing foreign media analysis, the Federal Reserve officially ended its balance sheet reduction on December 1. As a result, bank reserves have fallen to levels historically associated with financing stress, and the Secured Overnight Financing Rate (SOFR) has periodically tested the upper bound of the policy rate corridor. These developments indicate that the U.S. banking system is gradually entering a state of liquidity stress. In this context, the most important signal from the FOMC may not be a 25 basis point rate cut, but rather the direction of its balance sheet strategy. The Federal Reserve is expected to clarify, either explicitly or through its implementation note, how it intends to transition to a Reserve Management Purchase (RMP) program. According to Evercore ISI, this program could begin as early as January 2026, with about $35 billion per month allocated to Treasury purchases, resulting in annual balance sheet growth of over $400 billion. (Jin10)