# The Fed Only Lasted 12 Days Before Restarting QE Source: https://www.youtube.com/watch?v=4dPqbzvlP5k Recap page: https://rapidrecap.app/video/4dPqbzvlP5k Generated: 2025-12-12T14:39:20.98+00:00 --- ## Quick Overview The Federal Reserve restarted Quantitative Easing (QE) just 12 days after announcing the end of Quantitative Tightening (QT) on December 1st, by beginning net purchases of Treasury bills starting December 12th under the guise of reserve management. **Key Points:** - The Fed ended QT on December 1st, but on December 10th announced new purchases starting December 12th, meaning only 12 days passed between the two policy phases. - The new policy involves purchasing Treasury bills and potentially other Treasury securities with maturities of 3 years or less to maintain an ample level of reserves, amounting to about $40 billion of net Treasury bill purchases for the first 30 days. - Implementation notes revealed the Fed will increase System Open Market Account holdings of securities through purchases, a move described as a shock to the market, reversing the previous goal of draining reserves. - The Fed continues to drain mortgage-backed securities (MBS) from its balance sheet (QT for mortgages) but reinvests principal payments from MBS and maturing Treasuries into Treasury bills (QE back into T-bills). - The speaker argues that purchasing US government debt, regardless of whether it is labeled 'reserve management' or QE, results in money printing and expanding the money supply. - The M2 money supply growth rate, which had briefly turned negative during QT, is now growing at an annual rate of 4.4%, which fuels monetary inflation. - Unlike the 2019 reserve management purchases which were strictly T-bills, this new action extends flexibility to purchase up to three-year notes, covering a larger area of the yield curve. **Context:** The discussion centers on the recent policy shift by the Federal Reserve regarding its balance sheet operations, specifically the transition from Quantitative Tightening (QT), which involved reducing asset holdings since 2022, back to asset purchases, which the speaker equates to Quantitative Easing (QE). The context is set by the Fed's announcement that QT would cease on December 1st, followed quickly by a new announcement on December 10th detailing the resumption of purchases starting December 12th, which surprised many observers who anticipated a much longer pause. ## Detailed Analysis The Federal Reserve executed a rapid reversal of monetary policy, ending QT on December 1st and immediately restarting asset purchases (QE by another name) just 12 days later on December 12th. The mechanism for this restart is detailed in the FOMC implementation notes, specifically the third bullet point: the Fed will purchase Treasury bills and potentially other Treasury securities maturing in three years or less to maintain ample reserves, initiating with approximately $40 billion in net Treasury bill purchases over 30 days. This action directly contradicts the previous stated purpose of QT, which was to drain reserves from an abundant system. Furthermore, the Fed maintains a dual policy: continuing to roll off mortgage-backed securities (MBS) while reinvesting those proceeds into short-term government debt (T-bills), effectively shifting liquidity. The speaker stresses that while the Fed labels this 'reserve management'—a justification previously used in September 2019—the net result is printing money to purchase US government debt, expanding the money supply. This expansion is confirmed by the M2 money supply growth rate, which has rebounded from negative territory to 4.4% annually, indicating that more fuel is being added to monetary inflation, which ultimately leads to price increases across assets like gold, Bitcoin, and real estate. ### Timeline of Policy Reversal - QT ended December 1st - New purchases announced December 10th - QE effectively restarted December 12th - Only 12 days elapsed between ending tightening and restarting easing. ### Implementation Details - Fed will purchase Treasury bills and securities up to 3-year maturities - Goal stated as 'maintain an ample level of reserves' - Initial round includes $40 billion net Treasury bill purchases over 30 days. ### Dual Balance Sheet Strategy - Continuing to drain MBS holdings (QT for mortgages) - Reinvesting principal payments from MBS and maturing Treasuries into T-bills (QE component). ### Terminology Debate - Speaker insists purchasing government debt is QE regardless of Fed labeling - Compares current action to September 2019 'not QE' purchases - Argues the net result is always money printing and lending to the US government. ### Impact on Money Supply - M2 money supply growth rate went from negative during QT to 4.4% annually - Expanding money supply acts as a rising tide lifting asset prices. ### Change in Scope - Unlike 2019 purchases which focused strictly on T-bills, the new policy allows flexibility to buy up to 2-year or 3-year notes, extending purchases across a larger segment of the yield curve.