Core Insights - The Federal Reserve's decision to end quantitative tightening (QT) has sparked discussions about a potential policy shift, but it should not be equated with the start of a new easing cycle [1][2] - The Fed will stop reducing its Treasury holdings but will continue to let approximately $15 billion of mortgage-backed securities (MBS) mature each month, replacing them with short-term Treasury bills [1][3] - This operation is characterized as an asset swap rather than an increase in reserves, focusing on changing the composition of the balance sheet rather than expanding its size [1][4] Summary by Sections End of QT vs. Restart of QE - The current Fed operation is fundamentally different from quantitative easing (QE), which aims to inject liquidity into the financial system through large asset purchases [2][4] - The Fed's plan involves an internal adjustment of its asset portfolio, with no increase in bank reserves, making it a misunderstanding to interpret this as a restart of QE [2][3] Future Balance Sheet Expansion - Future expansion of the Fed's balance sheet is expected only in extreme situations, such as a severe recession or financial crisis, primarily to hedge against cash demand [3][4] - The Fed may begin purchasing Treasury bonds to maintain stable reserve levels, potentially increasing its buying by $10 billion to $15 billion monthly to match cash growth [3][4] Focus on Treasury Issuance Strategy - The key focus for asset markets should shift from the Fed to the U.S. Treasury, which plays a crucial role in determining how much duration risk the market needs to absorb [5][14] - The Treasury's recent strategy has leaned towards increasing short-term bond issuance, and the Fed's purchase of short-term Treasuries may facilitate this, depending on the Treasury's final decisions [5][14]