The Federal Reserve has added $125 billion into the U.S. banking system, including $29.4 billion on the final day of October, according to published reports. The largest injection of liquidity was on the last day of October, when the Fed made $29.4 billion in overnight repurchase agreements (repos), enabling to trade U.S. Treasuries, easing their funding positions.
This was the largest cash infusion by the Fed in five years. The move came as bank reserves hit $2.8 trillion, the lowest in more than four years, and only a few weeks before the Fed’s planned Dec. 1 ending of its balance sheet runoff.
“The long-stated plan had been to stop balance sheet runoff when reserves were somewhat above the level the Committee deemed consistent with ample reserve conditions,” Fed. Governor Lisa Cook said in an address at the Brookings Institution. “In the several weeks ahead of our latest meeting, signs, such as an increase in repo rates relative to administered rates, did emerge suggesting this standard had been reached. These developments were anticipated as the size of the balance sheet declined and supported the decision to cease runoff.”
The end of the balance sheet runoff, combined with recent rate cuts and potential rate cut in December, indicate that Fed tightening is at an end. The CME FedWatch Tool puts the chances of another 25 basis point interest rate cut in December at 67%.
“It’s not a stimulus package, it’s a plumbing bailout of $125 billion,” said Charles Urquhart, Fixed Income Resources founder and CEO. “The Fed stepped in to make sure that the short-term plumbing didn’t freeze and shut down the system. Bank reserves are the lowest they’ve been in years and with all Treasury issuance sucking up cash, the Fed stepped in to make sure that cash didn’t remain frozen.”
“As liquidity improves, lenders are better positioned to maintain or even expand product offerings like bank-statement, DSCR, and 1099-only loans that serve self-employed borrowers and investors often overlooked by traditional underwriting,” said Marc Halpern, Foundation Mortgage CEO. “That doesn’t mean rates will immediately fall, but it does reduce the risk of credit tightening that could have squeezed these flexible lending channels. The takeaway for brokers: this injection is a quiet win for non-QM borrowers who rely on alternative qualification methods, reinforcing the resilience and adaptability of the market.”
