Stocks Rise Despite Fed’s End to Balance Sheet Reduction

The Federal Reserve, led by Jerome Powell, is ending its balance-sheet reduction on December 1, while simultaneously implementing a 25 basis point rate cut.

These actions, easing financial constraints, invigorate market confidence, leading to potential stock gains despite previous balance sheet shortening.

The Federal Reserve has announced the end of its balance sheet reduction program, known as QT, effective December 1, 2025. This decision, alongside a 25 basis points rate cut, aims to ease prevailing liquidity strains. Jerome Powell, Chair, Federal Reserve stated, “The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.”

Key players in this development include Fed Chair Jerome Powell and Roberto Perli of the System Open Market Account. Their actions focus on addressing money-market strains and ensuring sufficient reserves in the banking system.

The announcement resulted in an immediate surge in stock market valuations, driven by improved liquidity outlooks. Investors anticipate a more accommodating environment as the Fed reduces its restrictive measures on financial conditions.

The financial implications include potential easing of funding stresses and increased confidence in risk assets. This shift aligns with the Fed’s strategy to prevent a repeat of past funding market disruptions.

Global markets and crypto assets, notably BTC and ETH, may see positive reactions due to enhanced dollar liquidity. Historically, such shifts have bolstered high-beta risk assets. Data from past QT phase conclusions suggest stronger asset performance in subsequent periods. The Fed’s decision mirrors prior moves where liquidity interventions stabilized and boosted financial systems.