Federal Reserve: RMP pause and QT timing – TD Securities

TD Securities' analysts Gennadiy Goldberg and Molly Brooks discuss the Federal Reserve's decision to temporarily pause its Reserve Management Purchases (RMP) and the timing of Quantitative Tightening (QT). The pause comes after the Fed reduced RMP from $40bn to $10bn per month, driven by soft money market rates and an ample reserve buffer, rather than an impending QT.

They anticipate RMP to resume at a reduced pace in November 2026 before any balance sheet adjustments in 2027. While markets may interpret this as a potential first step towards QT, the analysts believe the halt will be temporary, with RMP resuming in November to stabilize money markets before the year-end. The Fed will likely maintain RMP at zero for a few months until the reserve buffer falls slightly below the lowest comfortable level, allowing money market rates to stabilize.

The analysts view the pause as a temporary break, not a permanent end to RMP. They expect the Fed to resume RMP at a pace of $5-10bn per month as soon as November, driven by several factors. Importantly, the analysts note that the halt to RMP does not signal the Fed's imminent restart of QT, as the New York Federal Reserve is still directed to increase its holdings of securities through purchases of Treasury bills.