The Return of Not QE-QE
- sebastienpautrot
- Dec 11, 2025
- 2 min read
11 December 2025
As widely anticipated, the US Federal Reserve cut the funds rate by 25bp to 3.75% (upper band) at the December FOMC. That takes the policy rate closer to the upper end of neutral according to Chair Powell. A signal that “risk management” cuts are done. The Fed Chairman did not rule out more cuts if that was warranted by the data. However, he explicitly ruled out symmetrical (two-sided) risks to the policy path for now.
From our perch, the outlook for the labour market is pivotal for the Fed’s reaction function. The optimistic case is that the labour market is moderately weaker, rather than acutely weaker (non-linear rise in unemployment). A moderately weaker labour market would likely reduce inflation pressure which remains above the Fed’s target and permit a lower path for rates. That would likely be bullish for long duration assets including equities. However, as we have noted over the past few weeks, many of the best leading indicators of the labour market are consistent with a sharper rise in unemployment such as net-jobs plentiful in the Conference Board survey (chart 1).
Chart 1
Source: Bloomberg
Another curious development was the return of “Reserve Management Purchases” (not QE-QE) of around $40 billion per month of Treasuries focused on the front end of the yield curve. The Fed argues that such reserve management purchases will represent the natural next stage of the implementation of the FOMC’s ample reserves strategy and in no way represents a change in the underlying stance of monetary policy. Technically that might be correct, but we would question why it is necessary if there is no impact on policy.
The final big picture point, as we noted earlier this week (see A loose Anchor below) is that the United States is a “long rate economy” most borrowing is done at the longer end of the yield curve. The key interest rate to monitor is the 30-year Treasury bond yield. From a pure price perspective, that remains in a bullish triangle consolidation. The direction of breakout tends to be consistent with the primary trend. Stated differently, it suggests that long end yields are likely to break higher toward 5.5% (chart 2). From a fundamental standpoint, that would be consistent with loose financial conditions and the US Administration’s desire to “run it hot” into the mid-terms next year. Ironically the “good outcome” for the bond market would be a recession-like rise in unemployment. This is also a key reason why gold remains attractive.
Chart 2
Source: Bloomberg
Please refer to the previous note "A Loose Anchor".
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