Is the Federal Reserve, with its thick eyebrows and big eyes, also going to extend its maturity date?

A funny thing is that this afternoon, the most frequent questions I received weren't about the US-China negotiations, but about this news from a certain financial media outlet:Starting December 1st, all principal payments on maturing US Treasury bonds will be rolled over.

1. What does this mean?

Answer: It means stopping the quantitative tightening. The FOMC announced this this morning. No new information.

This is a minor translation error. The original text is "beginning in December 2025, to roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities." In Chinese, "rollover" can refer to both a creditor's proactive renewal of maturing loans (continuing to lend money to the debtor after maturity) and a debtor's debt restructuring or extension of repayment periods. The two meanings are completely opposite. Here, "rollover" refers to the former. Because the Federal Reserve's balance sheet reduction method is "not renewing maturing Treasury securities," not reducing the balance sheet means the Federal Reserve "automatically renewing maturing Treasury securities." 2. How does the Federal Reserve actually "stop reducing its balance sheet"? For US Treasury bonds, this means re-auctioning upon maturity. In practice, the Federal Reserve will repurchase the equivalent principal amount of maturing US Treasury bonds in this month's Treasury bond auction using a non-competitive method; this is called "add-on." Regarding Agency MBS, Powell clearly stated today that the proceeds from maturing MBS will be reinvested in short-term debt (Tbills). The ultimate goals are: 1) The Federal Reserve will only hold US Treasury bonds and not MBS; 2) The average duration of the US Treasury bonds held by the Federal Reserve (approximately 9 years) will gradually converge with the average duration of the outstanding US Treasury bonds in the market (approximately 6 years). 3. What asset implications does stopping balance sheet reduction have? For major asset classes, it's negligible. Those who truly need to care about the pace of balance sheet reduction are money market and derivatives market players, such as money market fund managers or traders doing FF-SOFR spreads or swap spreads. For 99% of investors, whether the Fed stops reducing its balance sheet, and where it stops, is purely redundant information. This is because the pace of balance sheet reduction primarily affects overnight interbank lending rates; even in the event of a brief liquidity crunch, its impact on major asset prices is almost zero. A case in point is the liquidity crunch of September 17, 2019. SOFR rates surged to around 5%, but US stocks and bonds showed almost no reaction.