Former New York Fed expert Mark Cabana predicts that, in addition to the widely anticipated 25 basis point rate cut, Fed Chair Powell will announce a $45 billion per month Treasury bill purchase program at the upcoming December FOMC meeting. This plan, set to begin in January 2026, aims to inject liquidity and prevent a further surge in repo market rates. Cabana warns that markets are underestimating the scale of the Fed's balance sheet actions, as money market rates indicate bank reserves are no longer "abundant." The move is seen as necessary to address liquidity shortages caused by previous quantitative tightening. UBS also forecasts a similar $40 billion monthly purchase program. The policy shift comes amid a critical leadership transition at the Fed, with Powell's term ending and expectations rising for Kevin Hassett to potentially succeed him.

<html><head></head><body>Author: Zhang Yaqi
Source: Wall Street News
As the Federal Reserve's December 10th policy meeting approaches, the market is not only focused on the widely anticipated interest rate cut but also on a potential major balance sheet expansion plan, according to senior Wall Street strategists.
Recently, Mark Cabana, a former New York Fed repo expert and now a rates strategist at Bank of America, predicted that, in addition to the widely expected 25 basis point rate cut, Fed Chair Jerome Powell will announce a plan next Wednesday to purchase $45 billion per month in Treasury bills (T-bills). This bond-buying operation is set to be implemented in January 2026, aiming to inject liquidity into the system and prevent a further surge in repo market rates.
Cabana warned in a report that while the interest rate market has reacted tepidly to the rate cut, investors are generally "underestimating" the scale of the Fed's actions regarding its balance sheet. He pointed out that current money market rates indicate that reserves in the banking system are no longer "abundant," and the Fed must restart purchases of securities to fill the liquidity gap. Meanwhile, UBS's trading desk has made a similar prediction, expecting the Fed to begin purchasing about $40 billion in Treasury bills per month starting in early 2026 to maintain stability in the short-term interest rate market.
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This potential policy adjustment comes at a critical time of impending leadership transition at the Fed. With Powell's term nearing its end and market expectations rising that Kevin Hassett might succeed him as Fed Chair, next week's meeting is not only about short-term liquidity but will also set the tone for the monetary policy path in the coming year.
<h2>Former New York Fed Expert Predicts: $45 Billion Monthly Purchases</h2>
Although market consensus is locked in on a 25 basis point rate cut next week, Mark Cabana believes the real variable lies in balance sheet policy. In his weekly report titled "Hasset-Backed Securities," he noted that the size of the RMP (Reserve Management Purchases) the Fed is likely to announce could be as high as $45 billion per month, a prediction that significantly exceeds current general market expectations.
Cabana detailed the composition of this figure: the Fed needs to purchase at least $20 billion monthly to cope with the natural growth of its liabilities, plus an additional $25 billion to reverse the reserve drain caused by previous "excessive quantitative tightening." He expects purchases of this magnitude to continue for at least 6 months. This announcement is expected to be included in the Fed's implementation note, with detailed operation sizes and frequency published on the New York Fed's website, focusing purchases on the Treasury bill market.
As previously reported by Wall Street News, since the balance sheet peaked at nearly $9 trillion in 2022, the Fed's quantitative tightening (QT) policy has reduced its size by approximately $2.4 trillion, effectively draining liquidity from the financial system. However, even with QT halted, signs of funding stress remain evident.
The clearest signals come from the repo market. As the short-term financing hub of the financial system, overnight reference rates in the repo market, such as the Secured Overnight Financing Rate (SOFR) and the Tri-Party General Collateral Rate (TGCR), have frequently and sharply breached the upper limit of the Fed's policy rate corridor in recent months. This indicates that reserve levels in the banking system are sliding from once "abundant" to "ample," with a risk of further moving towards "scarce." Given the systemic importance of the repo market, this situation is considered intolerable for the Fed in the long term, as it could weaken the transmission efficiency of monetary policy.
Against this backdrop, recent comments from Fed officials have also hinted at the urgency for action. New York Fed President John Williams stated that "we expect to reach ample reserve levels before long," while Dallas Fed President Lorie Logan noted that "I expect it will be appropriate to resume balance sheet growth before long." Cabana interprets "before long" as referring to the December FOMC meeting.
<h2>Auxiliary Tool Aimed at Smoothing Year-End Volatility</h2>
In addition to the long-term purchase plan, to address the impending year-end funding volatility, Bank of America also expects the Fed to announce term repo operations lasting 1-2 weeks. Cabana believes the pricing for these operations could be set at par with or 5 basis points above the Standing Repo Facility (SRF) rate, aiming to trim tail risks in the year-end funding market.
Regarding administered rates, although clients have inquired about the possibility of lowering the Interest on Reserve Balances (IORB), Cabana believes that simply cutting IORB "solves nothing," as banks generally prefer to hold higher cash buffers following the Silicon Valley Bank (SVB) collapse. He thinks it's more likely that the IORB and SRF rates could be cut synchronously by 5 basis points, but this is not the base case scenario.
Another important context for this meeting is the upcoming personnel changes at the Fed. The market currently views Kevin Hassett as a strong contender for the next Fed Chair. Cabana pointed out that once the new chair is confirmed, the market will price the medium-term policy path more based on guidance from the new appointee.
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UBS also agrees with the view that balance sheet expansion is returning. UBS's sales and trading desk noted that by purchasing Treasury bills, the Fed can shorten the duration of its assets, thereby better matching the average duration of the Treasury market. Whether this operation is called RMP or quantitative easing (QE), its ultimate goal is clear: through direct liquidity injection, to ensure the financial market can maintain smooth operation during this critical period of political and economic transition.
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Former New York Fed Expert: Powell May Announce $45 Billion Bond Purchase Plan

深潮

Michael Burry, of "The Big Short" fame, issued a warning that the Federal Reserve's new Reserve Management Purchases (RMP) program is a covert form of quantitative easing (QE) designed to mask deep-seated vulnerabilities in the US banking system. He argues that the need to inject liquidity, despite over $3 trillion in bank reserves, signals systemic fragility, not strength, stemming from the 2023 banking crisis. Burry contends that each crisis now forces the Fed to permanently expand its balance sheet to prevent funding crises. The market reaction showed rising 2-month Treasury yields and falling 10-year yield, alongside ongoing repo market volatility, raising concerns about year-end funding stress. He cautions against bullish bank stock advice and prefers Treasury money market funds for large deposits. While the Fed states RMP is a technical operation to ensure sufficient liquidity, Burry sees it as evidence of a weakened financial system reliant on constant central bank support.

<html><head></head><body>Author: Zhang Yaqi
Source: Wall Street News
Michael Burry, the real-life inspiration for the movie "The Big Short," issued a stern warning about the Federal Reserve's latest bond-buying plan, pointing out that it is called "Reserve Management Purchases" (RMP) but actually exposes the deep-seated fragility of the U.S. banking system. He believes this move is essentially a restart of quantitative easing (QE), aimed at concealing the liquidity crunch facing the banking system, rather than the routine operation claimed by the Fed.
As previously reported by Wall Street News, the Fed announced overnight that it would begin purchasing short-term Treasury bonds as needed to maintain sufficient reserve supplies. The New York Fed simultaneously released a notice, planning to buy $40 billion in short-term Treasury bonds over the next 30 days. This is the latest action since the official halt to quantitative tightening last week. This move comes against the backdrop of unsettling interest rate fluctuations in the $12 trillion U.S. repo market recently, with ongoing turmoil in the money market forcing the Fed to act quickly.
However, Burry believes this action precisely indicates that the banking system has still not shaken off the aftermath of the 2023 small banking crisis. He warned that if the banking system still needs the central bank to "inject blood" despite having over $3 trillion in reserves, this is by no means a sign of strength but a strong signal of systemic fragility.
Burry further analyzed that each crisis seems to force the Fed to permanently expand its balance sheet; otherwise, it cannot avoid the outbreak of a bank funding crisis. The subsequent market reaction validated the tight funding conditions, with the U.S. 2-month Treasury yield jumping and the 10-year Treasury yield falling. At the same time, volatility in the repo market persists, sparking concerns about a year-end funding crunch and forcing investors to reassess the stability of the financial system.
<h2>Covert Quantitative Easing and a Fragile Banking System</h2>
Burry questioned the Fed's use of the term "Reserve Management Purchases," interpreting it as a covert move aimed at stabilizing the still struggling banking industry. According to FRED data, before the 2023 crisis, U.S. bank reserves were only $2.2 trillion, but have now climbed to over $3 trillion.
Burry issued a warning:
"If the U.S. banking system cannot operate without over $3 trillion in reserves or Fed 'life support,' this is not a sign of robustness but a symptom of fragility."
He added that the pattern now seems to be that after each crisis, the Fed needs to permanently expand its balance sheet, or else face the risk of bank funding chains breaking. While this mechanism partly explains why the stock market is performing strongly, it also reveals the financial system's extreme dependence on central bank liquidity.
<h2>Market Operation Mismatch and Hedging Strategies</h2>
From an operational perspective, Burry highlighted a significant strategic shift between the U.S. Treasury and the Fed: the Treasury tends to sell more short-term bills, while the Fed focuses on buying these bills. This strategy helps avoid pushing up the 10-year Treasury yield. As expected by the market, after the Federal Open Market Committee (FOMC) meeting, the U.S. 2-month Treasury yield rose, while the 10-year Treasury yield fell.
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Given the ongoing volatility in the repo market, some analysts expect the Fed may need to take more aggressive action to avoid a year-end funding crunch. Against this backdrop, Burry sees this as further evidence of underlying weakness in the financial system. He warned investors to be wary of misleading advice from Wall Street about buying bank stocks and revealed that for funds exceeding the FDIC's $250,000 insurance limit, he prefers holding Treasury money market funds to hedge risks.
It is important to note that the primary goal of "quantitative easing" (QE) is to lower long-term interest rates by purchasing long-term Treasury bonds and MBS to stimulate economic growth. The purpose of RMP is more technical, focusing on buying short-term Treasury bonds to ensure there is enough liquidity in the financial system's "pipes" to prevent accidents. Bank of America stated that, based on the 2019 experience, liquidity injections will quickly lower the Secured Overnight Financing Rate (SOFR), while the response of the Federal Funds Rate (FF) will be relatively delayed. This "time difference" will create significant arbitrage opportunities for investors.
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Former New York Fed Expert: Powell May Announce $45 Billion Bond Purchase Plan

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