October 2025: The QT Endgame

Powell's Dovish Pivot

On October 14, Fed Chair Powell delivered a clearly dovish speech before the National Association for Business Economics (NABE), acknowledging rising "downside risks to unemployment" and signaling that balance-sheet runoff would cease. Markets priced near-certainty of an October cut.

Two weeks later, on October 29, the FOMC delivered: a 25 basis point cut to 3.75%–4.00%. But the vote — 10-2 — told a story of growing internal tension. Governor Miran dissented in favor of a larger 50 bps cut, while Kansas City Fed President Schmid dissented against any cut at all.

Powell was careful to temper expectations: "A further reduction at the December meeting is not a foregone conclusion. Far from it." He cited "strongly differing views" within the committee.

2025 FOMC Vote Tracker

The End of an Era

The FOMC simultaneously announced that quantitative tightening would formally end on December 1, 2025. Since June 2022, the Fed had reduced its securities holdings by over $2.2 trillion — roughly $1.6 trillion in Treasuries and $600 billion in MBS. Yet only about half of the pandemic-era balance sheet expansion was reversed before the program concluded.

QT Scorecard: June 2022 — December 2025

The decision reflected reserves approaching what the Fed termed the "ample" threshold. Dallas Fed President Logan, in an October 31 address on "Ample Liquidity for a Safe and Efficient Banking System," emphasized that the FOMC had navigated QT without triggering the kind of reserve scarcity that forced an abrupt stop in 2019.

The Standing Repo Facility in Action

On October 31, the Fed executed a $29.4 billion overnight operation through its Standing Repo Facility — a notable deployment of the backstop mechanism designed precisely for moments of temporary funding stress. The SRF's usage, while not alarming, underscored that liquidity conditions were tightening at the margins even as the Fed prepared to end QT.

Shutdown and Data Blackout

The government shutdown, which began in late September, dragged into its second month. With 1.4 million federal employees furloughed, BLS suspended its data operations. The October CPI was never collected. Jobs reports were delayed. The Fed and markets were operating with significant informational gaps — a dangerous condition when policy was at an inflection point.

The Credit Cycle Cracks

S&P Global's Q4 2025 Credit Cycle Indicator issued a warning of a potential "credit squeeze." Banks had tightened lending standards for commercial and industrial loans for six consecutive quarters, reaching levels last seen in 2007 and 2019.

C&I Lending Standards: Historical Tightening Episodes

The credit impulse had turned negative — and historically, every U.S. recession has been preceded by a negative credit impulse.

High-yield spreads remained compressed at approximately 3.0%, creating a dissonance between market pricing and underlying credit conditions. It was a setup George Soros would recognize immediately: compressed risk premiums coexisting with deteriorating fundamentals, sustained by the reflexive confidence that the Fed would continue cutting.

Implications

The end of QT marked the close of the Fed's most aggressive balance sheet normalization in history. But with the balance sheet still at roughly $6.5 trillion — 28% of GDP — the post-pandemic monetary architecture remained fundamentally different from anything that preceded it. The question going forward was not whether the Fed had enough reserves, but whether the financial system had become structurally dependent on a level of central bank accommodation that would prove difficult to withdraw.