Fed to Resume Treasury Purchases in Early 2026 as U.S. Economy Gains Relief

After three years of balance-sheet reduction, the Federal Reserve is preparing to return as a major buyer of U.S. Treasuries early next year. Investors and analysts view the move as a signal that the central bank intends to stabilize markets and ease concerns over the government’s borrowing outlook. 

Fed Plans to Restart Treasury Purchases in Q1 2026

Officials confirmed that asset purchases would begin in the first quarter of 2026, ending a period of steady balance-sheet reduction that began in 2022. The announcement follows growing signs that further tightening could risk disrupting funding markets .

Federal Reserve Chair Jerome Powell signaled that the Fed plans to let reserves grow again in line with the expanding banking system and overall economy. Analysts interpreted his remarks as confirmation that the central bank is ready to expand its balance sheet once again .

Marco Casiraghi of Evercore ISI projected that the Fed would start buying Treasuries in the first quarter of next year, with balance-sheet expansion likely by March. He estimated monthly purchases of around $35 billion in Treasuries, translating to a $20 billion monthly rise in the Fed’s $6.6 trillion balance sheet.

Powell’s comments and Casiraghi’s projections come as U.S. markets regain composure after months of anxiety about the government’s borrowing needs. Fund managers have grown more confident that the Fed’s actions will help ease debt-sustainability concerns.

Crypto Eyes Opportunity as Tightening Cycle Nears Its Finish Line

The Fed’s quantitative-tightening (QT) program began in 2022 to reduce Treasury and mortgage-backed securities accumulated during pandemic-era stimulus. QT has since drained reserves largely through the reverse-repo facility, which at its 2022 peak held $2.6 trillion in cash from eligible firms. That facility now shows almost no activity, suggesting that most excess liquidity has already been absorbed.

With tightening nearly complete, Fed policymakers aim to prevent reserves from falling too far. Balance sheets remain well above pre-pandemic levels, significantly higher than the $4.2 trillion recorded in early 2020. Still, officials aim to maintain sufficient liquidity to ensure the financial system functions smoothly.

Treasury Yields Slide as Fed Prepares Controlled Balance Sheet Expansion

Casiraghi and other analysts expect the new buying program to follow a measured, technical approach rather than a stimulus-driven one. 

Key aspects of the Fed’s upcoming plan include:

• Timing: Treasury purchases are scheduled to begin in the first quarter of 2026, with balance-sheet growth expected by March.
• Scale: Approximately $35 billion in monthly Treasury purchases, expanding holdings by roughly $20 billion per month.
• Asset mix: A gradual reduction in mortgage-backed securities as the focus returns to Treasuries.
• Purpose: To support smooth market functioning, not to inject emergency liquidity.
• Outcome: Maintain sufficient reserves for effective monetary policy implementation.

Markets have responded positively to signs of renewed asset buying. The 10-year U.S. Treasury yield—often viewed as a global borrowing benchmark—has fallen from 4.8% in January to below 4.1% amid growing confidence that rate cuts and balance-sheet expansion are approaching.

Yield Compression Hints at Easing Liquidity Strain, Supporting Crypto Outlook

Mark Cabana, head of U.S. rates strategy at Bank of America , noted that investors appear “far less anxious about supply pressures” as expectations of Fed purchases rise. He added that concerns over the deficit have eased thanks to stronger tariff revenues and the likelihood of new Treasury demand from the central bank.

Yields across the curve have also adjusted, with the spread between 10-year Treasuries and interest-rate swaps narrowed to about 0.16 percentage points. Compared to earlier this year, this figure represents a decrease in the interest-rate points. 

Long-term bonds have also compressed relative to shorter maturities, with the 30-year yield now only one point above the 2-year, compared with more than 1.3 points in September.

Casiraghi emphasized that the Fed does not intend to extend its tightening program, noting that liquidity conditions are already ample. Rather than stimulating growth, the coming asset purchases will aim to maintain a stable level of reserves in the financial system.