In the annals of central banking, few tools carry the weight of paradox quite like Quantitative Easing (QE). Born of crisis—first as an experimental ointment during the 2008 financial meltdown, then as a blunt instrument against the Covid-19 economic paralysis—QE has morphed from the emergency measure that it should be to a symbol of monetary largesse (as I outlined in Chapter 5, Escape The Wealth Illusion). It swells central bank balance sheets, floods markets with liquidity, and, in theory, lowers long-term borrowing costs to spur growth. Yet, as the U.S. Federal Reserve navigates the choppy waters of late 2025, the spectre of renewed QE feels less like the immediate inevitability some are predicting and more like a relic of a bygone era.
With inflation stubbornly above target, a labour market showing only mild fatigue, and global liquidity already in positive territory (as it has been for some time), the Fed’s data-driven ethos renders fresh asset purchases in the next one to three months not just improbable, but strategically unwise.
This article explores the multifaceted case against near-term QE, drawing on the Fed’s historical playbook, current economic indicators, and the broader interplay of U.S. monetary and fiscal policies. It also interrogates the prevailing theory that the central bank deploys its balance sheet arsenal only in the face of acute distress—be it a crumbling jobs market or spiking recession odds. In an environment where reserves are ample and policy risks abound, the Fed under Chair Jerome Powell appears poised to prioritize restraint over expansion.
Insights from some of the best macro research outfits around like 42 Macro, headed by Darius Dale, underscore this caution: their recent analyses highlight a liquidity landscape that’s supportive, if not exuberant, leaving little room for proactive easing if the Fed stick to their 2% inflationary target guns.
The Data-Led Imperative: A Historical Anchor for Restraint
The Federal Reserve’s commitment to being “data dependent” is more than rhetorical flourish; it’s a cornerstone of its post-Volcker identity, honed through decades of trial and error. Since the 1990s, under chairs from Alan Greenspan to Janet Yellen, the Fed has emphasised incoming economic signals over pre-emptive strikes, a philosophy Powell has elevated to doctrine amid the inflation scars of the early 2020s. This approach was evident in the taper tantrum of 2013, when mere hints of QE reduction roiled markets, and in the measured rate hikes of 2015-2019, calibrated to labour and price data rather than market pleas.
We can debate the rights and wrong’s of the big Fed decisions over the last decade (and I think there have been more big wrong’s than big rights) but the reality is they have a process for making these decisions which is data driven and, if they stick to that, QE seems a ways away here.
History offers stark lessons on QE’s deployment. The original QE trilogy (2008-2014) responded to the Global Financial Crisis’s credit freeze and sub-5% unemployment plunge; QE3 in 2012 chased a 6.7% jobless rate and near-zero inflation. The 2020-2022 iteration, ballooning the balance sheet to $9 trillion, countered a 14.8% unemployment spike and supply-chain-induced deflation risks. In each case, QE ignited only when traditional tools—rate cuts—hit the zero bound and growth teetered on recession’s edge.
Contrast this with December 2025: The economy hums with GDP at +3.0% pace in Q3/Q4, per advance estimates, with consumer spending resilient despite tariff headwinds which have proven not to be as inflationary as the Fed (or I) first feared. The labour market, while softening, boasts a 4.3% unemployment rate—near the Congressional Budget Office’s non-cyclical estimate of 4.4%—and initial jobless claims hovering at 220,000 weekly, a far cry from the 2020 surge past 6 million. High-frequency indicators point to stable U.S. and global activity, with no widespread build-up of stress in state-level labour markets. Absent a Sahm Rule trigger (a 0.5 percentage point unemployment rise over three months), the Fed’s bar for QE remains unmet and, in light of their seeming priority on inflation, rather high.
And that Inflation tells a similar tale of measured patience. The Fed’s preferred PCE gauge clocks in at 2.7% year-over-year through November, per nowcasts, with core at 2.9%—both adrift above the 2% target but decelerating from summer peaks. CPI, at 3.0% for the 12 months ending September, reflects sticky shelter costs and some tariff passthroughs, yet it’s a shadow of 2022’s 9.1% inferno. Powell’s Jackson Hole remarks in August 2025 reiterated this: “We are not on a pre-set path; we will wait for clearer evidence of sustained progress.” Launching QE now, with prices 70 to 100 basis points above target, risks rekindling the very inflationary forces the Fed has laboured to tame.
Some, including the aforementioned 42 Macro have questioned the validity in the neutral rate (r-star) being at 2% and I have raised this previously myself, but with the Fed sticking to that target this may delay liquidity injections like QE, lest they overstimulate an already buoyant system.
Powell’s Twilight: Term Limits and Institutional Guardrails
Jerome Powell’s tenure as Fed chair concludes on May 15, 2026, a horizon that looms large over current deliberations. Nominated by Donald Trump in 2017 and renominated by Joe Biden in 2021, Powell has steered the Fed through pandemic QE, aggressive hikes, and now a delicate normalization. With speculation swirling around successors—Kevin Hassett’s name continually surfaces as a Trump-aligned frontrunner—Powell faces a lame-duck calculus: cement a legacy of prudence, not precipitate a policy pivot that invites reversal.
This endgame dynamic amplifies caution for us in markets around QE expectation. Incoming chairs inherit balance sheets; Powell, eyeing his January 2028 governor term expiration, has little incentive to balloon assets anew, only to hand off an oversized ledger amid fiscal bloat. His October 2025 press conference underscored this: “Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above ample.” QE, by contrast, demands consensus and congressional scrutiny—tools Powell can defer to his successor. Historical precedent aligns with this thesis: Ben Bernanke tapered QE in his final years and Janet Yellen resisted expansion amid 2018’s equity wobbles. Powell’s data-led restraint signals a policy stance that’s “restrictive but not contractionary,” preserving flexibility without overreach.
The Runoff’s End: Normalisation, Not Reversal
The Fed’s balance sheet odyssey—from $4 trillion pre-Covid to $9 trillion peak, now at $6.7 trillion—marks a deliberate unwind in the past 3 years. Quantitative Tightening (QT), launched in June 2022, has shed $2.2 trillion, with Treasury runoff capped at $5 billion monthly since April 2025. This past October, the FOMC halted Treasury redemptions effective December 1, citing ample reserves at $2.89 trillion and near-zero reverse repo usage—a proactive pivot to avert 2019-style repo spasms. Mortgage-backed securities runoff persists at $35 billion monthly, but the net effect? This is stabilisation, not expansion. It isn’t even in the same ballpark as expansion.
This recent end to balance sheet runoff underscores QE’s remoteness in the medium term. Reserves, at 10% of GDP, exceed the Fed’s 8-10% ample threshold and further QT cessation would organically grow liquidity via GDP expansion, negating QE’s need. As New York Fed’s Roberto Perli noted in September 2025, “Observing a more substantial shift in the EFFR relative to IORB would signal ample reserves”—a shift not yet materialising. Reinstating QE here would invert three years of normalisation, inviting moral hazard and market expectations of perpetual backstops, not to mention the Powell legacy we discussed earlier.
Monetary and Fiscal Crosscurrents: A Crowded Policy Stage
U.S. monetary policy operates in a fiscal policy shadow at the moment and it has been this way for quite some time. Deficits, at 6.9% of GDP in fiscal 2025, swell the Treasury General Account (TGA) and crowd out private borrowing, per Deloitte’s Q3 forecast. Trump’s tariff salvo—25% on imports, per early implementations—juices revenues but risks stagflation with core PCE potentially hitting 3.3% in 2026. Immigration curbs, meanwhile, crimp labour supply, exacerbating wage pressures in a 4.3% unemployment backdrop.
Fiscal dominance complicates QE: Expanded purchases would monetise (parts of at least) US deficits, blurring lines and fuelling further inflation fears. Powell’s March 2025 testimony warned of “fiscal space constraints,” echoing BIS analyses of global liquidity where U.S. debt issuance absorbs 38% of cross-border credit.
With the economy’s “jobless expansion” risking abrupt layoffs but not yet tipping into recession (or close enough to it)—J.P. Morgan pegs odds at 40% for 2025—the Fed treads a fiscal tightrope, prioritising rate tweaks (which the market has already priced in for Q4 2025 and another 2 in 2026) over balance sheet bombs.
Global Liquidity’s Buffer: No Need to Pour More Fuel on the Fire
Globally, liquidity flows net positive and has for pretty much all of this year (and further back), per BIS indicators: Cross-border bank credit hit $34.7 trillion in Q1 2025, up $1.5 trillion quarterly, driven by 14% NBFI lending growth. Dollar credit outside the U.S. grew 6% year-on-year in Q2, euro 13%, yen flat but from a low base. Central bank aggregates—Fed, ECB, BOJ, PBoC—collectively expanded 5% in USD terms through mid-year, per TradingView’s Global Liquidity Index, buoyed by TGA drawdowns and RRP depletion.
This excess mutes QE’s appeal. Adding reserves now risks overheating: Foreign currency credit already pressures EMDEs, and U.S. easing could amplify carry trades and exacerbate BOJ spill overs. Delphi Digital’s macro thread flags the first net-positive liquidity since 2022, with QT’s end and three 2026 cuts implying 3.25-3.5% fed funds—ample without QE. As Michael Howell of CrossBorder Capital observes, “Global liquidity inches closer to September’s peak, supportive rather than abundant.” Inflation’s 3% perch amplifies this: More liquidity could echo 2021’s commodity surge, undermining credibility.
The Threshold Theory: QE as Crisis Response, Not Precaution
Underpinning this analysis is the “threshold theory” of Fed activism: Balance sheet expansion demands “significant reason”—labour market weakness (e.g., 2012’s 8% unemployment) or rising recession risk (2020’s 30% GDP plunge). Absent these, QE invites asymmetric risks: Upside growth pales against inflation’s tail.
If this Powell led fed has been consistent in one thing, it’s that they will only act when the data supports action, even if that action comes far too late (which on this occasion, it actually doesn’t!)
Current signals they rely on fall short. Recession probability sits at 33%, per WSJ economists, with labour stress localised (23 states at high risk, per Moody’s Mark Zandi, but California and New York—30% of GDP—hold firm). Job growth averaged 62,000 monthly through September, soft but not collapsing; layoffs remain low at 1.2% private-sector rate. The SF Fed’s Labour Market Stress Indicator, tracking state claims, shows stability through mid-2025—no widespread recession signal.
Ultimately, to me at least, U.S. data signals “health,” with global spillovers adequately contained. Threshold breaches—say, unemployment breaching 4.5% or GDP contracting—could flip the script, but early 2026 lacks such catalysts. As Skanda Amarnath of Employ America argued on Bloomberg’s Odd Lots in August 2025, “The labour market could turn south quickly… but not yet.” QE, then, stays holstered.
Conclusion: Prudence in an Uncertain Dawn
As 2025 wanes, the Fed confronts a Goldilocks conundrum: Not too hot, not too cold, but just right for watchful waiting. Inflation’s overhang, Powell’s sunset, runoff’s closure, fiscal headwinds, and global liquidity’s glow collectively argue against QE in the January-March window. The threshold theory holds: Without labour’s lament or recession’s roar, expansion risks more than it rewards.
And with that I remind readers again to beware of those with vested interest calling for risk asset expansion based on QE dynamics-most of these players have an incentive to sell this dream to the uninitiated, generally so they have exit liquidity when they confirm, again, that they missed the “sell into strength” portion of the market. Particularly in Crypto.
Thankfully for us, we’re not in that camp. Our November BTC exit at $106k has proven to be a very good risk signal and with it we’ve bought ourselves nearly 20% of risk premium for free in this move.
That said, Investors should still take note from a QE perspective: Markets pricing two 2026 cuts reflect the restraint we advocate, per J.P. Morgan. Yet vigilance endures—tariffs’ bite or shutdown scars could shift these sands. For now, the Fed’s history as data sentinel prevails, a bulwark against the temptation of easy money. In central banking, as in life, the hardest choices yield the soundest legacies.