Fed Halts Reserve Purchases, But QT Not Imminent

The Federal Reserve has paused Reserve Management Purchases (RMP) at $10 billion per month, sparking concerns about an impending Quantitative Tightening (QT). However, TD Securities' Gennadiy Goldberg and Molly Brooks argue that this move is temporary and aimed at smoothing over money market functioning ahead of year-end.

The analysts believe the halt in RMP reflects soft money market rates and an ample reserve buffer. They expect purchases to resume at a reduced pace in November 2026 before any balance sheet changes in 2027.

Goldberg and Brooks note that the Fed will likely hold RMP at zero for a few months until the buffer they have built above the lowest comfortable level of reserves (LCLOR) declines marginally, allowing money market rates to stabilize. They view the halt as a pause, not a permanent stop.

The analysts emphasize that this decision is not a signal that the Fed will imminently restart QT. The Fed's implementation instructions still direct the New York Fed to 'increase the System Open Market Account holdings of securities through purchases of Treasury bills.'