Perhaps as soon as next week, the term "RMP" will be trending across the entire market and be regarded as the "new generation of QE."

The era of “Quantitative Tightening” (QT) on the Federal Reserve’s balance sheet has come to an end, and a new phase aimed at expanding the balance sheet may soon begin. The market is holding its breath for a new acronym—RMP (Reserve Management Purchases). Although Fed officials emphasize its fundamental difference from Quantitative Easing (QE), this does not seem to prevent investors from viewing it as the “next-generation QE.”

With the Fed officially stopping the reduction of its balance sheet this Monday, Wall Street's focus quickly shifted to the next step. Due to continued volatility in the U.S. money markets, especially with the $12 trillion repo market’s interest rates showing unsettling swings recently, analysts generally believe that the Fed may announce as early as next week’s policy meeting the initiation of “Reserve Management Purchases” (RMP) aimed at increasing system liquidity.

According to analysts Marco Casiraghi and Krishna Guha from Evercore ISI, the Fed may announce monthly purchases of $35 billion in short-term Treasury bills (T-bills) starting next January. Considering about $15 billion in mortgage-backed securities (MBS) mature each month, this move would net an approximate $20 billion monthly growth in the Fed’s balance sheet.

This potential policy shift marks the Fed’s liquidity management strategy shifting from “draining” to “injecting," aiming to ensure the financial system has sufficient reserves to operate smoothly. For investors, the timing, scale, and specifics of RMP’s implementation will be key clues for judging future market liquidity conditions and interest rate directions.

Farewell to “balance sheet reduction”—Why a new round of expansion?

Since peaking at nearly $9 trillion in 2022, the Fed’s QT policy has shrunk its balance sheet by about $2.4 trillion, effectively draining liquidity from the financial system. However, even though QT has stopped, signs of funding stress remain evident.

The clearest signal comes from the repo market. As the short-term financing hub for 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 end of the Fed’s policy rate corridor in recent months.

This indicates that reserve levels in the banking system are sliding from “ample” to “sufficient,” and risk moving further towards “scarcity.” Given the systemically important role of the repo market, this situation is seen as intolerable for the Fed in the long term, as it could undermine the efficacy of monetary policy transmission.

RMP vs QE: Technical maneuver or policy shift?

With the term RMP entering the public view, the market will inevitably compare it to QE. Though both involve the Fed buying assets, there are significant differences in intent, tools, and impact.

First, QE’s main goal is to lower long-term interest rates by buying long-term government bonds and MBS to stimulate economic growth. RMP’s aim is more technical—ensuring there is enough liquidity in the financial system’s “pipes” to prevent accidents. Therefore, RMP will focus on buying short-term T-bills, and its overall effect on market interest rates should be more neutral.

New York Fed President John Williams emphasized a month ago:

“Such reserve management purchases will be the natural next stage of the Federal Open Market Committee’s (FOMC) ample reserves strategy, and do not represent a shift in the underlying stance of monetary policy.”

Despite clear official intentions, for a market used to QE’s logic, any form of balance sheet expansion could be interpreted as a dovish signal.

Wall Street’s expectations: When will it start, and how large will it be?

Investment banks on Wall Street have offered specific forecasts about the timing and scale of RMP’s launch, though details differ.

Evercore ISI expects the Fed to announce at next week’s meeting, and start monthly purchases of $35 billion in T-bills from January. The bank also thinks the Fed may need a one-off, additional purchase of $100–$150 billion in Q1 to quickly replenish reserves.Bank of America strategist Mark Cabana also believes RMP could start on January 1, and stresses that the scale of purchases is the key signal. He notes that if monthly purchases exceed $40 billion, it will positively affect market spreads; if below $30 billion, it may be seen as negative.Goldman Sachs’ forecast is similar in net balance sheet growth to Evercore ISI, projecting about $20 billion in net monthly purchases.JPMorgan has a slightly different view—analysts Phoebe White and Molly Herckis predict in their 2026 outlook that RMP will start in January 2026, and at a smaller scale of about $8 billion per month.

In addition to starting RMP, the Fed does have other tools. The Standing Repo Facility (SRF) was specifically set up for such cases, but due to “stigma,” its effectiveness in curbing the recent surge in rates has been limited.

According to JPMorgan analysis, the Fed may consider adjustments to SRF—such as switching to continuous quoting instead of twice-daily auctions, or lowering its rate—to encourage more institutions to use it. Ultimately, however, the solution may still depend on expanding the balance sheet.

In the short term, given the persistent volatility in the repo market, some analysts suggest that to avoid severe funding stress at year-end, the Fed may even implement some “temporary open market operations” to smooth things out before formally announcing RMP. Either way, next week’s Fed meeting will undoubtedly provide crucial guidance for how the market says goodbye to QT and welcomes RMP.

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