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

The selection process for the next Federal Reserve Chair is entering its final stage. Although White House National Economic Council Director Kevin Hassett is currently the frontrunner, President Trump has initiated a final round of interviews, indicating the outcome is not yet certain. Trump and Treasury Secretary Steven Mnuchin are scheduled to interview former Fed Governor Kevin Warsh this week, among other candidates including Fed Governors Christopher Waller and Michelle Bowman, and BlackRock executive Rick Rieder. A key concern among some Wall Street investors is that Hassett, perceived as close to the president, might pursue overly aggressive interest rate cuts, potentially unsettling markets. Hassett has recently emphasized the importance of central bank independence and data-driven decisions. The decision is expected in early January. This process occurs against a backdrop of Trump's longstanding criticism of current Chair Jerome Powell for not cutting rates more quickly. The Fed is widely expected to cut rates by 25 basis points this week.

<html><head></head><body>Author: Long Yue
Source: Wall Street Insights
The selection process for the next Federal Reserve Chair is entering its final stage. Although White House National Economic Council Director Hassett is currently in the lead, Trump's decision to initiate a final round of interviews indicates that the final candidate is far from being a "done deal."
Today, according to a report by the UK's Financial Times citing three senior US government officials, Trump and Treasury Secretary Bessent plan to meet with former Federal Reserve Governor Warsh this Wednesday. This move marks the official start of the final round of interviews to find a successor to the current Chair Powell.
This latest development suggests that Hassett's nomination is not yet a sure thing. In addition to Hassett and Warsh, the final candidate list includes two other shortlisted individuals from among Federal Reserve Governors Waller and Bowman, as well as BlackRock executive Rick Rieder, among others. The final decision is expected to be announced in early January next year.
The core impact of this personnel change lies in the future direction of monetary policy. Some Wall Street investors have already expressed concerns that Hassett, who is closely aligned with the president, might cut interest rates too aggressively, potentially posing risks to the market.
<h2>Hassett Leads, but Term Length May Be Uncertain</h2>
In recent weeks, Hassett has emerged as the frontrunner to succeed Powell. However, Trump administration officials have floated the idea of Hassett serving a shorter term as Fed Chair than the normal tenure. The regular term for a Federal Reserve Chair is four years and is renewable.
Two other informed sources stated that Hassett himself had suggested to Bessent that he take over Powell's seat on the Federal Reserve Board, a term that ends in January 2028. This flexible arrangement leaves room for future personnel planning.
<h2>Bessent Could Still Take Over the Fed</h2>
Treasury Secretary Bessent plays a key role in this selection process. According to officials, he submitted a list of four names to the White House, which included both Hassett and Warsh. Although Trump has repeatedly expressed publicly his desire for Bessent to serve as Fed Chair, Bessent himself has stated he has no interest in the position.
However, if Hassett's term is shortened, it could pave the way for Bessent to take charge of the Fed later in a potential second Trump term. This potential arrangement hints at the longer-term strategic considerations that may underlie the current selection process.
<h2>Market Concerns and Hassett's Response</h2>
Hassett's leading position has already caused unease among some bond investors. It is reported that these investors have conveyed to the Treasury Department their concern that Hassett might cut interest rates aggressively. They believe that if this leads to persistently high inflation, it could destabilize the $30 trillion US Treasury market.
To alleviate market concerns, Hassett recently attempted to emphasize the importance of central bank independence. At an event on Tuesday, he stated that although he believes there is still room for further rate cuts, the "most important job" of the Fed Chair is to "focus on economic data and avoid getting involved in politics."
The entire selection process is taking place against the backdrop of Trump's long-standing criticism of the current Chair Powell. Over the past year, Trump has consistently criticized Powell for not lowering borrowing costs faster and more significantly. Markets widely expect the Fed to announce a 25 basis point rate cut this Wednesday, lowering the target range for the federal funds rate to a three-year low of 3.5% to 3.75%.
Even so, Trump has publicly called for US borrowing costs to be reduced to a level of 1%. For any new Chair, balancing the president's expectations with maintaining the central bank's independence will be a significant challenge.
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