WASHINGTON – The Federal ReserveS decision to end its balance sheet reduction program failed to reassure financial markets Wednesday, as concerns mount over rising Treasury yields and a potential slowdown in economic growth. analysts are now widely anticipating the central bank will soon begin purchasing Treasury bonds to stabilize the market, a reversal of its recent tightening policy.
The Fed concluded its quantitative tightening (QT) program, initiated in June 2022 to combat inflation, with its final settlement occurring on November 5, 2025. However, the move did little to quell investor anxieties, evidenced by a continued climb in the 10-year Treasury yield, which reached 4.92% as of 18:30 EST. This surge reflects growing skepticism about the Fed’s ability to maintain price stability without triggering a recession.The shift in expectations towards potential bond purchases signals a recognition by analysts that the current market conditions require a more interventionist approach.
The initial QT program aimed to reduce the Fed’s $9 trillion balance sheet by allowing maturing Treasury securities and agency mortgage-backed securities to roll off without reinvestment. The program’s conclusion was intended to allow market forces to more directly influence interest rates. However, a combination of factors – including strong economic data, persistent inflation, and increased government borrowing – has driven yields higher, creating headwinds for businesses and consumers.
“The market is clearly testing the Fed’s resolve,” saeid Michael Gapen, Head of US Economics at Bank of America Securities. “The rise in yields is already tightening financial conditions, and if it continues unchecked, it could significantly dampen economic activity.”
analysts at Goldman Sachs now estimate a 60% probability that the Fed will begin purchasing treasury bonds in the first quarter of 2026, a considerable increase from their previous forecast of 20%. This potential pivot would mark a significant shift in monetary policy, mirroring actions taken during the 2008 financial crisis and the early stages of the COVID-19 pandemic. The move would aim to lower long-term interest rates,stimulate investment,and provide support to the economy.
