Fed Minutes to Show $40 Billion Monthly Bill Purchases Through April, Then Taper, Sources Say

The Pace of Purchases

The Federal Reserve's minutes from its Dec. 9 to Dec. 10 meeting, scheduled for release on Dec. 30 after a notation vote on Dec. 29, will show that the Open Market Desk recommended purchasing roughly $40 billion in Treasury bills each month through April to maintain ample reserves, after which the pace will slow substantially, according to two Fed officials familiar with the minutes and a trader at a primary dealer. The minutes will describe the decision as a response to a projected sharp decline in reserve balances in mid to late April, when tax payments flow into the Treasury General Account.

The Dec. 10 policy statement announced that the Fed would end quantitative tightening on Dec. 1 and would increase its securities holdings through purchases of Treasury bills and, if needed, other Treasury securities with maturities of three years or less. The statement also cut the federal funds target range by 25 basis points to 3.50 to 3.75 percent and lowered the interest on reserve balances to 3.65 percent, effective Dec. 11. The minutes will fill in the operational details that the statement left out, including the specific pace of reserve management purchases and the Desk's expectation that purchases would taper after the April tax date.

The Fed's balance sheet stood at roughly $6.6 trillion in early December, down from a peak near $9 trillion in 2022. Bank reserves have fallen to an estimated $2.83 trillion to $2.89 trillion range, close to the $2.5 trillion to $2.7 trillion threshold that Fed staff consider the lower bound of ample. The standing repo facility saw heavy use in late October, with daily balances reaching $50.35 billion on Oct. 31, a sign that money markets were tightening. The minutes will note that those conditions convinced the manager to start purchases in December rather than waiting until the spring, the officials said.

A Divided Committee

The minutes will also show that the Dec. 10 rate cut was the fourth consecutive non unanimous decision, a streak not seen since 2019. The vote was 9 to 3, with Fed Governor Stephen Miran dissenting in favor of a 50 basis point cut and Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid dissenting in favor of no change at all. Chair Jerome Powell described the decision as a close call at his post meeting press conference, and the minutes will reveal that several participants debated whether the slowing labor market or sticky inflation posed the greater risk.

The new economic projections released with the statement showed the median FOMC member expecting just one additional 25 basis point cut in 2026, leaving the terminal rate near 3.25 to 3.50 percent. That projection was unchanged from September, but the updated dot plot masked significant disagreement. Some officials argued that three consecutive cuts in 2025 had already pushed policy close to neutral, while others worried that the labor market was cooling faster than the headline unemployment rate suggested. The minutes will show that participants spent considerable time discussing the neutral rate of interest, with estimates ranging from 2.5 percent to 3.5 percent in real terms.

Fiscal policy also featured prominently. The minutes will note that staff incorporated preliminary assumptions about higher tariffs into the economic forecast and that several participants raised the risk that tariff pass through could keep core personal consumption expenditures inflation above the 2 percent target through 2027. The government shutdown that lasted 43 days and ended in mid November delayed key data releases, leaving the committee to rely on private payroll estimates and weekly jobless claims. The Dec. 20 jobless claims report showed initial claims falling to 214,000, the lowest level since January 2025 excluding holiday anomalies.

Market Impact and What to Watch

Markets have already priced most of the Dec. 10 decisions. The 10 year Treasury yield ended the week of Dec. 22 near 4.15 percent, roughly where it had traded for most of December, while the 2 year yield settled near 3.50 percent. The curve has steepened since the Fed signaled that the bulk of easing is over, with fed funds futures showing roughly a 70 to 85 percent probability that the Jan. 28 to Jan. 29 meeting will end with no change. The minutes are unlikely to shift that pricing unless they reveal stronger concern about inflation or a more aggressive taper schedule than investors expect.

The bigger question for traders is whether the Fed can maintain its insistence that reserve management purchases are not a return to quantitative easing. The minutes will show that several participants went out of their way to distinguish RMPs from the large scale asset purchases used after the 2008 financial crisis and during the pandemic. The distinction matters because a formal QE program could be seen as fiscal financing at a time when the federal deficit remains near 6 percent of GDP and debt issuance is running at record levels.

Over the next 48 to 72 hours, watch for three signals. First, the official minutes release at 2 p.m. on Dec. 30, which will confirm whether the $40 billion monthly pace and the April taper are described exactly as sources predict. Second, the weekly H.4.1 balance sheet report, which will show the first reserve management purchases on the Fed's books. Third, any reaction from the Treasury Department, which is scheduled to announce its quarterly refunding plans in late January and will need to gauge how much demand the Fed will add at the short end of the curve.