BREAKINGVIEWS-Supersized Fed will outlive zombie monetarism

Reuters
2025.12.17 09:58
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The Federal Reserve announced it will buy $40 billion of Treasury bills to manage liquidity in the money market. This move aims to address short-term demand fluctuations. Despite concerns over the Fed's large balance sheet, historical failures suggest reducing it could be risky.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Jon Sindreu

LONDON, Dec 17 (Reuters Breakingviews) - The central bank will buy $40 bln of Treasury bills. Many officials, including some who may soon lead the institution, dislike its bloated balance sheet which keeps the market flooded with $3 trln of liquidity. But failed 1980s experiments suggest shrinkage could court disaster.

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CONTEXT NEWS

The Federal Reserve announced on December 10 that it would perform “reserve management purchases” of Treasury bills in the secondary market. The central bank’s aim is to inject enough liquidity in the money market to keep up with demand, accounting for short-term swings around holidays and tax payment dates. The first round of RMPs, which will buy paper worth roughly $40 billion, started on December 12. (Editing by Peter Thal Larsen; Production by Streisand Neto)

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