2025-10-27 00:31Investment Rating - The report indicates a shift in the Federal Reserve's approach, with expectations that quantitative tightening (QT) will end soon, particularly at the upcoming October FOMC meeting [12][18][27]. Core Insights - Major banks, including Goldman Sachs and JPMorgan, anticipate that the Fed will halt its QT process due to declining bank reserves, which have fallen below $3 trillion [7][13][21]. - The liquidity situation in the market is deteriorating, with increased borrowing costs and reduced balances in overnight reverse repurchase agreements (ON RRP), indicating greater friction in funding markets [19][22][23]. - The Fed's low tolerance for rate volatility and political pressures are contributing factors for an earlier end to QT, as the central bank aims to avoid past liquidity crises [19][24][25]. Summary by Sections - Liquidity Conditions: The report highlights that while overall liquidity remains ample, funding markets are experiencing significant frictions as ON RRP balances have dropped to nearly zero, leading to elevated funding rates [19][22]. - Fed's Balance Sheet Management: Analysts expect the Fed to initiate temporary open market operations (TOMO) to alleviate stress in funding markets, followed by reserve management purchases of approximately $8 billion per month starting January 2026 [20][21]. - Market Reactions and Predictions: Following recent market turbulence, several banks have revised their forecasts for the end of QT, with many now predicting it will conclude at the October meeting rather than later in the year [27][29][30].