Federal Reserve: RMP pause and QT timing – TD Securities

TD Securities’ Gennadiy Goldberg and Molly Brooks analyze the Federal Reserve’s decision to halt Reserve Management Purchases (RMP) after tapering from $40bn to $10bn per month. They argue the pause reflects soft money market rates and an ample reserve buffer, not imminent Quantitative Tightening (QT), and expect RMP to resume at a reduced pace in November 2026 before any balance sheet changes in 2027.

Fed pauses RMP, QT seen distant

"Markets may worry that this is the first step on the road back to Quantitative Tightening (QT), but we believe the halt will be temporary and purchases will resume in November to help smooth over money market functioning ahead of year-end."

"In the meantime, the Fed will likely hold RMP at zero for a few months until the buffer they have built above the lowest comfortable level of reserves (LCLOR) declines marginally, allowing money market rates to stabilize."

"We view the halt to RMP as a pause, not a permanent stop. As such, there are several factors that should help drive the Fed to resume RMP at a $5-10bn/month pace as soon as November"

"We do not see the stop to RMP as a signal that the Fed will imminently restart QT. The Fed's implementation instructions still direct the New York Fed to "increase the System Open Market Account holdings of securities through purchases of Treasury bills"."