Williams says FOMC ended balance sheet runoff December 1 and began reserve management purchases in December 2025.
“First, having determined that reserve balances were approaching the ample range, at its October 2025 meeting it decided to conclude the runoff of aggregate SOMA securities holdings effective December 1; and second, when it judged that reserves declined to the ample range in December, it instructed the Desk to begin reserve management purchases (RMPs) to maintain reserves within that range.”
Williams clarifies future reserve management purchases will not represent a change in monetary policy stance.
“Such reserve management purchases will represent the natural next stage of the implementation of the FOMC’s ample reserves strategy and in no way represent a change in the underlying stance of monetary policy.”
Williams says ample reserves lie between $1.5 trillion and the current $3.2 trillion level.
“As I said, it’s hard to estimate exactly what constitutes an ample level of reserves. We know that number is lower than the current $3.2 trillion, since market indicators still point to reserves remaining abundant.”
Williams explains runoff stoppage aligns with 2022 plan to end when reserves reach somewhat above ample.
“In its May 2022 plans, the Committee stated that it would stop runoff when reserves were somewhat above an ample level.”
Williams clarifies future reserve management purchases will not represent a change in monetary policy stance.
“Such reserve management purchases will represent the natural next stage of the implementation of the FOMC’s ample reserves strategy and in no way represent a change in the underlying stance of monetary policy.”
Williams reiterates his main finding that uncertainty increases optimal reserves without a lending facility.
“First, absent a lending facility, the optimal supply of reserves under uncertainty is greater than it would be absent uncertainty.”
Williams explains lending facility rate relative to target spread determines precautionary reserve needs and facility usage.
“This effect is greatest when the lending rate is closer to the target spread. On the other hand, if the lending rate is very high relative to the target spread, then the facility is rarely used, and the optimal supply of reserves is near what it would be absent a facility.”
Williams states optimal reserve supply under uncertainty is unequivocally higher than without uncertainty when no lending facility exists.
“Absent a lending facility, the optimal supply of reserves under uncertainty is unequivocally higher than it is without uncertainty.”
Williams says gradual asset purchases will follow to maintain ample reserves as Fed liabilities grow over time.
“It will then be time to begin the process of gradual purchases of assets that will maintain an ample level of reserves as the Fed’s other liabilities grow and underlying demand for reserves increases over time.”
Williams says the Committee will consider stopping runoff when reserves reach ample levels.
“The Committee has indicated that it will consider stopping balance sheet runoff when we reach that point.”
Williams says economic growth will naturally increase demand for Federal Reserve liabilities including currency and reserves.
“After that, growth in the economy will naturally result in increasing demand for Federal Reserve liabilities, including currency and reserves.”
Williams says monthly RMP pace can likely be significantly reduced after April.
“But, as the Desk said in its statement in December, the monthly pace can likely be significantly reduced after April.”
Williams announces FOMC will end balance sheet runoff on December 1.
“At its meeting last week, the FOMC decided it would conclude the reduction of its aggregate securities holdings on December 1.”
Williams says high uncertainty can make abundant reserves optimal even when target spread suggests ample reserves region.
“Indeed, if the uncertainty is great enough, the optimal level of reserves can exceed the cutoff for abundant reserves under no uncertainty.”
Williams says the FOMC determined in December that reserves had reached ample levels after three years of runoff.
“After more than three years of balance sheet reduction, the FOMC ended runoff last fall, then determined in December that reserves had reached ample levels, consistent with the principles and plans it had outlined in 2022.”
Williams argues historical scholarship shows monetary policy extends beyond short-term rates to broader liquidity and longer-term rates.
“However, this narrow understanding of monetary policy is alien to the history of monetary economics and central bank practice.”
Williams critiques labeling forward guidance and balance sheet policies as unconventional, suggesting this makes them appear suspect.
“Indeed, there even has been a label attached to it: “conventional monetary policy.” By implication, other monetary policy actions that have been used—such as forward guidance and balance sheet policies—are deemed “unconventional,” and therefore somewhat suspect.”
Williams says the Fed will probably need to start expanding the portfolio soon to meet growing reserve demand.
“The exact timing will depend on several factors, but, as President Williams said, given what we know today we probably won’t have to wait long.”
Williams concludes there is no single best way to supply reserves across different jurisdictions.
“In other words, there is no single best way to supply reserves; rather, the best mix of tools depends on circumstances and policy preferences unique to each jurisdiction.”
Williams says Treasury's target TGA balance has grown from $320 billion in 2016 to $850 billion in 2025.
“Treasury has increased its assumed quarter-end TGA balance from $320 billion in early 2016 to $850 billion on average in 2025.”
Williams says SOMA portfolio is now $6.4 trillion or 20 percent of GDP, down from pandemic peak of $8.5 trillion.
“Assets are now slowly growing in dollar terms, via RMPs, to maintain ample reserves and accommodate growth in the demand for Federal Reserve liabilities.”
Williams says Fed will begin gradual asset purchases to maintain ample reserves once that level is reached.
“Looking forward, the next step in our balance sheet strategy will be to assess when the level of reserves has reached ample.”
Williams confirms the FOMC ended balance sheet runoff effective December 1.
“the Committee made that decision at its October meeting, with portfolio runoff ending effective December 1.”
Williams reports Fed securities holdings fell from $8.5 trillion in 2022 to $6.25 trillion currently.
“The process has worked according to plan. The Fed’s securities holdings have shrunk from a peak of about $8-1/2 trillion in 2022 to $6-1/4 trillion today.”
Williams says the Desk is conducting reserve management purchases at $40 billion monthly.
“As you know, so far, the Desk has been conducting reserve management purchases at a monthly pace of $40 billion.”
Williams says Fed securities holdings fell from $8.5 trillion in 2022 to $6.25 trillion currently.
“The Fed’s securities holdings have shrunk from a peak of about $8-1/2 trillion in 2022 to $6-1/4 trillion today.”
Williams says the balance sheet has fallen from 35 percent of GDP in early 2022 to around 22 percent now.
“Our balance sheet has fallen from the equivalent of around 35 percent of GDP, in early 2022, to around 22 percent of GDP now.”
Williams says Fed will begin gradual asset purchases once reserves reach ample level to maintain that level.
“It will then be time to begin the process of gradual purchases of assets that will maintain an ample level of reserves”
“Today, reserves total around $2.9 trillion, as shown on the right side of the stylized balance sheet ( Panel 2 ).”
Williams says monthly RMP pace will likely be adjusted soon after April tax season.
“An adjustment to our monthly purchase pace is likely to happen soon. Beyond April, the TGA is likely to decline as the Treasury uses the funds it receives via tax inflows to pay its obligations.”
Williams says the Fed will resume growing the balance sheet when reserves reach ample levels.
“When market conditions suggest reserves are ample, we will provide those liabilities by beginning to grow our balance sheet once again.”
Williams says potential changes to bank liquidity requirements may eventually reduce reserve demand.
“In particular, future potential changes to bank regulatory liquidity requirements may eventually reduce demand for reserves.”
Williams announces FOMC decided in October to end balance sheet runoff on December 1.
“At its meeting in October, the FOMC decided it would conclude the reduction of its aggregate securities holdings on December 1.”