The Fed Just Ended QT: What It Could Mean for the Dollar

So the U.S. Federal Reserve ended “QT” on December 1, 2025. What does that actually mean for currency traders?

No, the U.S. central bank is not ending “Quality Time” because FOMC members are divided on their policy biases.

Instead, after three years of draining money from the financial system, the Fed is just hitting pause on its quantitative tightening (QT) program – one of its most powerful monetary policy tools.

Let’s break down what quantitative tightening is, why the Fed stopped it, and what it could mean for the U.S. dollar and bond markets.

The Basics: What Just Happened

What is QT?

When the Fed buys bonds, it injects money into the banking system. More money available means easier borrowing and cheaper credit. That tends to stimulate economic activity. This is called quantitative easing (QE).

When the Fed lets bonds “roll off” (mature without replacement), it removes money from the system. Less money available means tighter credit and higher borrowing costs. That usually slows the economy down. This is quantitative tightening (QT).

Think of “QE” as pressing the gas pedal, while “QT” is tapping the brakes.

Why did QT stop?: A Timeline

The Fed’s balance sheet had swollen to nearly $9 trillion during the pandemic.

In June 2022, the Fed started a QT program to combat the post-pandemic inflation. Month after month, up to $60 billion in Treasuries and $35 billion in mortgage-backed securities rolled off. At its peak, that meant about $95 billion a month was drained from the financial system.

From June 2022 through November 2025, QT trimmed about $2.4 trillion, bringing the total down to roughly $6.5 to $6.6 trillion.

Even then, the balance sheet was still far above its pre-pandemic level, around $4 trillion. It did not return to “normal.” It simply stopped shrinking.

But by October 2025, the warning lights were flashing. Bank reserves slipped below $3 trillion, overnight funding rates inched higher, and money markets showed strain.

On October 29, the Fed announced its QT would end on December 1. From that day on, the Fed began reinvesting proceeds from maturing bonds instead of letting them roll off.

What traders need to know is that ending QT is not the same as restarting full-scale quantitative easing.

The Fed has not launched a new bond-buying spree. It has just stopped pulling liquidity out of the system.

Why It Matters: Market Impact

U.S. Treasury bonds

During QT, the Fed was essentially a massive bond seller, forcing private investors to absorb more government debt. That pushed bond prices down and yields up. With QT over, that selling pressure will disappear.

The 10-year Treasury yield has been hovering around 4.09% as of early December 2025. Analysts expect yields could drift lower now that the Fed isn’t actively draining liquidity. Lower yields mean cheaper borrowing costs for governments, companies, and consumers.

U.S. dollar

Think of the Fed ending QT like turning off a vacuum cleaner that’s been sucking money out of the financial system—that vacuum was actually helping prop up the dollar because less money floating around theoretically made each dollar more valuable.

Now the vacuum is off, but the Fed isn’t turning on a fire hose to spray money back in either (that would be full QE or “money printing”). They’re just standing still, which means the dollar loses one source of support but isn’t getting crushed either.

The result is gentle downward pressure on the dollar—not a collapse, just a slow drift lower as that liquidity boost fades away. The Dollar Index (DXY) is already down about 6-7% over the past year, trading near 99.00 in early December, and analysts expect it to continue softening gradually into 2026.

Other risk assets

When the Fed stops draining liquidity, markets typically calm down. But because this isn’t aggressive QE aimed at boosting growth, it’s more about reducing volatility from liquidity drains than creating a massive risk-on rally.

The Bottom Line

The Federal Reserve’s decision to end quantitative tightening marks a shift from active tightening to neutral territory—but this is not the same as firing up the money printer. The Fed removed the brake, but it hasn’t hit the accelerator.

For three years, QT acted like a slow-motion handbrake on markets, draining liquidity from the financial system. Now that pressure is gone. The Fed’s balance sheet will stabilize around $6.5 trillion (still roughly 60% above pre-pandemic levels), which should mean calmer liquidity conditions and potentially less funding-market volatility. That’s neutral for markets, not bullish. That’s the nuance newbie traders need to grasp.

Going forward, currencies tied to carry trades or liquidity flows may behave differently in this new environment. It’s likely that monetary policy divergence will have even more weight on forex biases now that balance sheet mechanics are less of a concern.

What to watch next: Markets are pricing in an 88.8% (on Dec. 3rd) chance of another 25 basis point rate cut at the Fed’s December 18 meeting, but before that, watch the November inflation data dropping December 16 for clues about the Fed’s next move. Also keep an eye out for any announcements about “technical” Treasury bill purchases—not QE, but balance-sheet management that would make the Fed a consistent buyer at the short end of the curve.

For the U.S. dollar, near-term softness is likely to continue, but don’t expect a collapse. Again, we’re in neutral territory—not tightening, not aggressively easing. Policy shifts create uncertainty, so use proper position sizing and stop losses as always. The difference between “ending QT” and “starting QE” might seem subtle, but it matters enormously for how markets react—and how you should trade them.