Fed Balance Sheet Set for Slow $20B Monthly Growth Into 2026

• The Federal Reserve is gearing up to launch a new quantitative easing phase in early 2026, though this time around things look very different from past cycles. Fresh projections from Goldman Sachs paint a picture of how Fed liabilities might shift if reserve management purchases kick off in January. The model shows reserves nudging just above $3 trillion by late 2026, signaling a careful and controlled balance sheet expansion.

• Here’s what makes this round stand out: the Fed plans to grow its balance sheet by roughly $20 billion monthly, a far cry from the massive $800 billion per month we saw back in 2020. The updated chart shows reverse repo balances dropping while the Treasury General Account holds steady, and reserve balances inch upward at a measured pace. This isn’t about flooding markets with liquidity like before. It’s more about keeping the financial plumbing working smoothly without going overboard.

• The type of securities being purchased matters too. The Fed is expected to focus on Treasury bills rather than longer-dated Treasury coupons. As one analyst put it, “Bill purchases constitute a slower form of QE because they do not push down long-term yields in the same way traditional coupon-focused programs do.” This technical approach means the impact on long-term interest rates and risk assets should stay pretty limited.

• Reserve balances will grow gradually, but don’t expect this to drive a major rally in stocks or crypto. This version of QE is designed as a stability tool rather than a stimulus program. The Fed wants to support smooth market functioning while keeping balance sheet growth in check through 2026. It’s a targeted adjustment, not a green light for risk-taking.

My Take: This slow-motion QE tells us the Fed learned its lesson from previous cycles. By sticking to bill purchases and modest monthly amounts, they’re threading the needle between maintaining liquidity and avoiding market distortions. Smart money won’t confuse this with the money-printing era.

Source: Milk Road Macro