You’re still looking at the same two plumbing signals….T-bills held by the Fed and total Fed assets, and they’re telling you that liquidity is being topped up quietly, even while the Fed insists policy is restrictive.
That matters because it shows where the line is. We’re not at stimulus. We’re at stabilization.
This is what pre QE behavior looks like.
What’s Happening Under The Hood
The policy rate and the plumbing can move in opposite directions but only up to a point.
Right now, QT officially ended on December 1st, 2025, and the Fed shifted into “reserve management.” In other words they stopped shrinking the balance sheet before something snapped. Bills, repo, and small balance sheet increases are the least controversial tools they have.
This is still a don’t break the pipes phase, not a growth rescue.
The key distinction is intent…
• Today’s actions are about market function.
• Full QE is about economic survival.
What It Would Actually Take To Trigger Full On QE And Fast Rate Cuts
For the Fed to move from quiet liquidity management to outright QE and accelerated cuts, several things would have to break…not wobble, break.
Here’s the checklist…
- Credit spreads blow out and stay blown out
Not a bad week, a regime shift.
• High yield spreads gap wider and don’t retrace.
• Investment grade liquidity thins.
• Primary issuance stalls even at punitive yields.
When credit stops clearing, the Fed’s dual mandate becomes irrelevant. Financial stability takes over.
- Funding stress goes systemic, not episodic
Repo spikes, SOFR dislocations, collateral shortages but persistent, not seasonal.
• Standing repo isn’t just used, it’s leaned on daily.
• Term funding dries up.
• Banks start hoarding reserves again.
That’s the moment reserve management fails.
- Labor breaks fast, not slowly
The Fed can tolerate weak manufacturing.
It cannot tolerate a sudden labor unwind.
• Unemployment rises sharply, not gradually.
• Layoffs spread from cyclicals into services.
• Job openings collapse at the same time participation rolls over.
That’s when rate cuts stop being optional.
- A major balance sheet accident
This is the accelerant.
• A large non bank financial player fails.
• A CRE refinancing wave turns disorderly.
• A Treasury auction fails or clears with violent tail risk.
This is how timelines compress from “later this year” to “emergency meeting.”
- Deflation shows up faster than inflation can reaccelerate
If demand destruction overwhelms cost pressure:
• Prices roll over.
• Margins compress.
• Earnings revisions cascade lower.
At that point, keeping rates high becomes actively destabilizing.
The Historical Rhyme And Why QE Always Looks Sudden
QE never starts when the data looks bad.
It starts when markets stop functioning.
• 2008: credit froze and QE followed.
• 2020: funding seize and QE exploded.
• QE is not a policy preference. It’s a failure response.
Before QE, you always see…
• repo first
• bills next
• balance sheet creep
• then cuts
• then QE
We’re somewhere in the middle of that sequence not at the end.
What The Fed And Treasury Would Be Forced To Do
If those triggers line up, the response is predictable…
• Rapid rate cuts, not 25bps “insurance” moves.
• Explicit QE, not bill heavy reserve management.
• Coordination with Treasury to absorb duration and stabilize issuance.
• Expanded facilities to stop forced selling across credit markets.
That’s not stimulus. That’s damage control.
The Tell To Watch
If liquidity additions remain small and reversible, we’re still in maintenance mode.
If balance sheet expansion becomes persistent and credit markets stop healing on their own, the Fed loses optionality fast.
When QE arrives, it won’t be debated.
It will be announced over a weekend.
That’s always how it happens…