Fed’s Williams Signals Return to Asset Purchases, Fueling Easing Bets
New York Fed President’s comments suggest a proactive shift to manage bank reserves, interpreted by markets as a dovish turn in monetary policy.
A senior Federal Reserve official has signaled the central bank is preparing to begin purchasing assets again, a move that could mark a significant dovish shift from its recent policy of shrinking its balance sheet and has stoked expectations of renewed market liquidity.
Speaking at a European Central Bank conference on Friday, New York Fed President John Williams stated it "will not be long before we reach ample reserves" in the banking system, at which point "it will then be time to begin the process of gradual purchases of assets." The remarks, delivered at a closely watched ECB conference on money markets, were interpreted by investors as a clear indication that the Fed is poised to start expanding its $6.6 trillion balance sheet once more.
Williams framed the potential move as a technical adjustment to ensure the financial system has enough liquidity, driven by what he called "recent sustained repo market pressures." This is distinct from the large-scale quantitative easing (QE) programs deployed during the 2008 financial crisis and the COVID-19 pandemic, which were aimed at broadly stimulating the economy by lowering long-term interest rates.
Despite the technical justification, the announcement represents a notable pivot. For the past three years, the Fed has been engaged in quantitative tightening (QT), allowing its holdings of Treasury and mortgage bonds to mature without replacement. This process, which reduced the Fed's balance sheet from a peak of $9 trillion, was officially halted on December 1. Williams' comments now suggest the next phase is not just holding the balance sheet steady, but actively expanding it again.
Analysts are already forecasting the potential scale of the new purchases. According to a note from investment bank Evercore, the Fed may need to acquire as much as $50 billion in assets, primarily Treasury bills, on a monthly basis starting in the first quarter of 2026 to maintain reserve stability.
Market participants are likely to welcome the prospect of renewed asset purchases, regardless of the underlying reason. The injection of liquidity into the banking system is generally seen as a positive for risk assets like equities, as it can suppress borrowing costs and encourage investment.
However, the move is not without its critics. Prominent investor Ray Dalio recently issued a warning about such a policy shift. In a commentary reported by Morningstar, Dalio cautioned that significant balance sheet expansion, especially if combined with interest rate cuts and large fiscal deficits, could be viewed as a form of debt monetization. He argued that such conditions could risk over-stimulating markets and contributing to a potential asset bubble.
For now, the focus is on the timing. Williams did not provide a specific date, linking the start of purchases to when bank reserve levels move from being "somewhat above ample" to "ample." This data-dependent approach gives the Federal Reserve flexibility, but his explicit language suggests the change is on the near-term horizon. Investors will now be closely monitoring the Fed's weekly financial statements and money market conditions for signs that the pivot to asset purchases is imminent.