The Federal Reserve suddenly took a major action: significantly increasing the scale of purchases of U.S. Treasury securities, causing Wall Street to explode, with institutions urgently adjusting their forecasts for 2026.
The Federal Reserve announced that it will buy $40 billion in short-term U.S. Treasuries every month, which is much more than the market anticipated.
As soon as this news broke, Wall Street was thrown into chaos, and major financial institutions quickly reassessed their plans for Treasury issuance and interest rate trends in 2026: Barclays raised its forecast for the Federal Reserve's 2026 purchase scale from $345 billion to $525 billion.
JP Morgan and TD Securities also stated that the Federal Reserve would buy more Treasuries in the future.
Bank of America believes that the Federal Reserve may maintain this accelerated pace of bond purchases for a longer time, aiming to replenish bank reserves and stabilize interest rates in the money market.
The views of strategists are surprisingly consistent:
The Federal Reserve's actions this time are very unusual and clearly signal that its tolerance for tight funding is almost zero.
Market reactions were swift, with the gap in two-year swap rates reaching its highest level since April. The interest rate difference between SOFR and FF has also widened. Trading volume for short-term interest rate futures surged.
In short, the Federal Reserve's actions this time can be considered a small-scale quantitative easing, significantly alleviating short-term funding tightness.
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