Hidden QE, Inflation & Fed Rates — 2026 Setup

📈 The Fed quietly restarted Treasury buying in December 2025, around $40B per month. Officially it’s called “reserve management,” but in reality this looks a lot like QE coming back through the back door.

QT is basically done, the balance sheet is expanding again, and banks expect $30–45B/month to continue through 2026 — with the peak likely in Q1–Q2.

📉 Rates: Currently around 3.5%. The base case is 1–2 rate cuts:

–25 bps in spring

Possibly another cut in early summer

After that, the Fed likely pauses around 3.0%.

📉 Inflation: Core PCE is slowly cooling, expected to move from ~2.4% toward 2.0% by year-end.

🧠 Big Picture:

Liquidity + rate-cut expectations could fuel a risk-on rally early in the year. But by summer, markets may start to consolidate as investors fully price in ongoing QE and a policy pause.