Fed’s 2025 Asset Buying Spree: Liquidity Lifeline or Financial Panic Button?
The Federal Reserve just signaled it's reloading the money cannon—asset purchases resume early next year to combat what they're politely calling 'financing challenges.'
Wall Street's Safety Blanket Returns
When the going gets tough, the Fed gets printing. Their upcoming intervention aims to soothe market jitters and keep credit flowing—because nothing says stability like creating money to solve problems created by creating money.
The central bank's playbook remains unchanged: flood the system, prop up assets, and hope nobody notices the long-term consequences. Traditional finance's solution to every crisis? More liquidity, fewer questions.
Meanwhile in crypto-land, we're building systems that don't need emergency bailouts every few years. The Fed's move proves once again why decentralized alternatives matter—you can't manipulate what you don't control.
Another round of monetary morphine coming to a market near you. The addiction continues.
U.S. markets have eased their anxiety about the country’s supply pressures
Casiraghi projected that the Fed would purchase around $35 billion worth of Treasuries per month, translating into a $20 billion monthly expansion of its $6.6 trillion balance sheet. He also noted the Fed will drop some of its mortgage-backed assets.
The Fed’s actions are intended to restore confidence among investors uneasy about the government’s debt sustainability. So far, markets have calmed somewhat, with traders expecting the Fed to end its quantitative tightening. Fund managers were also optimistic that the U.S. deficit, currently at 6% of GDP, may shrink.
Mark Cabana, head of U.S. rates strategy at Bank of America, even noted that markets seem far less anxious about supply pressures than before. He remarked, “Concerns about the deficit worsening have been cooled due to strong tariff revenues, and the expectation that the Fed will soon start buying [government debt].”
The 10-year U.S. Treasury yield, a bellwether for global borrowing, has already dropped from 4.8% in January to under 4.1%, thanks to a sustained rally since the summer, primarily driven by expectations that the Fed will soon lower rates.
Casiraghi asserts that the Fed does not intend to extend QT at the moment
The yield spread between U.S. 10-year Treasuries and interest swaps of the same maturity has narrowed sharply since April’s peak, dropping to roughly 0.16 percentage points. Typically, bond yields and swap rates remain closely aligned, as they both reflect expectations for future interest rates. But in the U.S. and U.K., yields have outpaced swaps this year as investors demanded extra yield to take on growing government debt.
Yields on 30-year U.S. bonds are now just one percentage point higher than on 2-year notes, down from over 1.3 in September. Meanwhile, the gap between 10-year U.K. government bond yields and swap rates has narrowed to roughly 0.25 percentage points from almost 0.4 percentage points in April.
The Fed’s decision to call off its quantitative tightening path came along when signs appeared that the central bank’s attempt to lift liquidity was destabilizing short-term funding markets
The purchases indicate that banks have more than sufficient reserves. To put this into perspective, in the past, quantitative easing engaged trillions of dollars in debt buys during downturns. Casiraghi even explained that quantitative easing is designed to boost liquidity aggressively during times of crisis.
In contrast, the Fed’s goal now is simply to ensure the system has enough reserves to implement policy effectively.
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