The Federal Reserve unexpectedly reduced RMP, slashing monthly bond purchases by nearly 40% to $2.5 billion.

```

The Federal Reserve announced it will reduce the monthly scale of short-term Treasury purchases (RMP) to about $25 billion, a much sharper cut than Wall Street had previously anticipated, catching the market off guard. This decision marks the acceleration of the Fed’s exit from the liquidity injection plan launched at the end of last year.

According to the New York Fed's open market operations website, the reserve management bond purchases will be executed during the monthly cycle ending May 13, with about $15.5 billion of reinvestment purchases also carried out in the same period. Compared to the roughly $40 billion monthly pace when the program started last December, this reduction represents nearly 40%, significantly stronger than market expectations.

(Details of New York Fed’s Treasury operations)

This announcement has a direct impact on the short-term financing market. Since last December, the Fed has purchased about $217 billion of Treasury bills (including reinvestment purchases), effectively maintaining stable operation of the financing market.

Market participants previously widely expected the Fed to keep a cautious pace and exit gradually, given the reserve fluctuations brought by US tax season had not yet subsided.

Cut exceeds expectations, analysts say the market has gotten through the toughest period

Wall Street strategists originally expected the Fed to shrink the plan in a slow and cautious way, but this announcement clearly diverged from those expectations.

Gennadiy Goldberg, US rates strategy chief at TD Securities, said: "Considering the Fed repeatedly emphasized a gradual reduction, this speed is indeed faster than the market anticipated. They obviously believe the market has passed the most pressured phase."

Roberto Perli, a New York Fed official responsible for managing the Fed's multi-trillion-dollar securities portfolio, jointly stated in a blog post last month with colleagues that the monthly purchase pace may be "substantially cut," and noted that during the transition from mid-April to mid-May, the reduction process could be “relatively gradual,” to address uncertainty and other factors.

However, the actual reduction in this announcement is clearly beyond the range implied by that statement.

Project origins: Liquidity replenishment after balance sheet reduction halt

The launch of this plan stems from a major shift in the Fed’s monetary policy operations. In December 2025, the Fed abruptly halted its balance sheet reduction process (i.e., quantitative tightening), and instead supplemented reserves to the financial system by purchasing short-term Treasury notes with less than one year remaining maturity.

Last December, the Fed initiated Treasury purchases at a pace of about $40 billion per month, aiming to relieve short-term upward pressure on interest rates. Fed Chairman Powell at that time said the Fed was "front-loading" purchases to ensure reserves were ample during the April tax season.

Tax season disruptions and reserve outlook

Cash flows related to tax season are a major context for the Fed's decision. This week, US personal income tax payments are expected to trigger significant fluctuations in reserve balances and cause notable volatility in overnight markets, which was a key reason the market expected the Fed to act cautiously.

Roberto Perli pointed out that tax payments are expected to cause sharp swings in the Treasury General Account (TGA) and reserve balances, with the trough expected in late April—this judgment was also reflected in the March 18–19 FOMC meeting minutes.

In his blog, Perli forecast that from late April to September, reserve levels would be roughly equivalent to the level at the end of 2025, maintained at about $3 trillion.

Risk warning and disclaimerThe market involves risk; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ special investment objectives, financial status or needs. Users should consider whether any opinions, views or conclusions in this article fit their specific circumstances. Investing based on this article is at your own risk. ```