The Federal Reserve shrank its balance sheet during quantitative tightening (QT) mainly by letting securities mature without replacing all of the principal payments. The Federal Open Market Committee (FOMC) set monthly redemption caps: principal payments up to each cap ran off, while amounts above the cap were reinvested. That process reduced the Fed’s securities holdings without requiring routine outright sales.
QT runoff ended on December 1, 2025. The Fed now rolls Treasury principal into new Treasury securities, reinvests agency-security principal in Treasury bills, and has been purchasing short-term Treasury bills as needed to keep reserves ample. The latest figures therefore describe a post-QT reserve-management phase, not an ongoing balance-sheet runoff.
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What the Fed’s balance sheet contains
A central bank balance sheet has assets on one side and liabilities on the other. The Fed’s largest assets include Treasury securities, agency debt and agency mortgage-backed securities (MBS) held in its System Open Market Account (SOMA). Its liabilities include commercial-bank reserve balances, Federal Reserve notes (currency), the Treasury General Account and reverse repurchase agreements.
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The FOMC has described the federal funds rate target as its primary way to adjust the stance of monetary policy. Managing the size and composition of securities holdings supports an ample-reserves operating framework; it did not replace interest-rate policy. The official 2022 plan states that “changes in the target range for the federal funds rate” are the Committee’s primary policy instrument (FOMC plan).
How securities runoff reduced holdings
1. A security reaches a payment date
When a Treasury security or agency security in SOMA matures or makes a principal payment, the Fed receives the principal. Normally, an investor could use that cash to buy another security. During QT, the Fed replaced only part of the principal according to the caps set by the FOMC.
2. Monthly caps limited reinvestment
Under the initial plan announced in May 2022, the Fed allowed a specified amount of Treasury and agency principal to roll off each month. Principal payments above a cap were reinvested, so the portfolio did not fall unpredictably when a large amount matured in one month.
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3. The unreinvested amount left the portfolio
If $80 billion of Treasury principal arrived in a month with a $60 billion Treasury runoff cap, the Fed would allow $60 billion to mature without replacement and reinvest $20 billion. The securities portfolio would decline by $60 billion. The example illustrates the accounting mechanism; actual monthly payments and reinvestments varied with the maturity schedule.
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The approach relied on predictable non-reinvestment rather than routine outright sales. That helped the FOMC reduce holdings while avoiding the need to sell large quantities of securities into the market on a discretionary schedule (May 2022 runoff plan).
What the 2022 runoff caps meant
The initial 2022 schedule phased in over three months. It ultimately set monthly caps of $60 billion for Treasury securities and $35 billion for agency debt and agency MBS. Principal above those limits was reinvested. The caps were later adjusted to slow the pace, and the FOMC ended runoff altogether in 2025, so the 2022 figures are historical parameters rather than current policy.
| Security type | Initial eventual monthly cap | What happened above the cap | Status now |
|---|---|---|---|
| Treasury securities | $60 billion | Principal above the cap was reinvested | Runoff ended; Treasury principal is rolled over at auction |
| Agency debt and agency MBS | $35 billion | Principal above the cap was reinvested | Runoff ended; principal is reinvested in Treasury bills |
Because the caps governed principal payments, the actual decline in holdings in any particular month depended on which securities matured and how much principal arrived. The cap was not a promise that the entire portfolio would fall by exactly the same amount every calendar month.
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Why QT did not mechanically remove the same amount of reserves
In a simplified balance sheet, allowing $60 billion of securities to mature would appear to reduce a liability—often bank reserves—by $60 billion as well. The Fed’s actual liabilities make the relationship more complicated.
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Suppose a security matures and the payment is settled through the banking system. Reserve balances can decline, but another liability may change instead. The Treasury General Account can rise or fall as the U.S. Treasury collects taxes and spends. Banks and money-market funds can alter their use of the Fed’s overnight reverse repurchase facility. Currency demand changes as the public holds more or fewer Federal Reserve notes. Each movement changes the mix of liabilities.
When the overnight reverse repo facility balance falls, that decline can absorb part of the pressure that securities runoff would otherwise put on reserves. Conversely, growth in other non-reserve liabilities can reduce reserves even after securities runoff has stopped. For that reason, QT should not be described as a one-for-one mechanical reduction in bank reserves. The Federal Reserve’s balance-sheet explanation details these offsetting flows (May 2026 balance-sheet developments; User’s Guide to Reducing the Federal Reserve’s Balance Sheet).
QT versus interest-rate policy
QT and a higher federal funds rate can both tighten financial conditions, but they are different tools. The FOMC changes the target range for the federal funds rate through administered rates and market operations. QT changes the quantity and composition of securities on the Fed’s balance sheet.
- Rate policy: changes the price of overnight money and is the FOMC’s primary policy instrument.
- QT: reduces securities holdings through planned non-reinvestment, supporting an ample-reserves framework.
- Interaction: the FOMC can use both tools, but a change in one is not a direct substitute for the other.
QT therefore does not mean the Fed was “selling bonds to raise rates” in every instance. During the 2022–2025 runoff, the central mechanism was allowing principal to mature and not fully reinvesting it.
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When the Fed ended runoff
In October 2025, the FOMC announced that aggregate securities runoff would conclude effective December 1, 2025. Its operating instructions changed in two important ways: Treasury principal would be rolled over at auction, and principal payments from agency securities would be reinvested in Treasury bills (Federal Reserve policy-normalization overview).
Those instructions stopped the deliberate shrinkage of the securities portfolio. They did not freeze every balance-sheet item. Assets, reserves and other liabilities can still move as securities are purchased, payments settle and the Treasury or financial institutions change their accounts.
What happened after QT: reserve-management purchases
The post-runoff phase added purchases for reserve management. The Federal Reserve’s July 2026 Monetary Policy Report said that, since early January 2026, SOMA had purchased nearly $250 billion of Treasury bills. Approximately $160 billion represented reserve-management purchases and about $90 billion represented reinvestment of agency-MBS principal (July 2026 Monetary Policy Report, Part 2).
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Current figures: keep the measures separate
Different Federal Reserve releases report different dates and balance-sheet lines. The figures below should not be combined as though they were one measurement.
| Measure | Value | Observation date | What it represents | Source |
|---|---|---|---|---|
| Securities holdings decline | About $2.2 trillion | June 1, 2022 to October 31, 2025 | Cumulative decline in securities holdings during the runoff period | Federal Reserve, May 2026 |
| Total assets | About $6.7 trillion | July 1, 2026 | All Fed assets, not just securities | July 2026 Monetary Policy Report |
| Reserve balances | About $3.1 trillion | July 1, 2026 | A liability owed by the Fed to depository institutions | July 2026 Monetary Policy Report |
| Reserve balances | $2,948,090 million (about $2.948 trillion) | Week ending September 30, 2026 | Average reserve balances for the week | H.4.1, October 8, 2026 |
| Securities held outright | $6,464,597 million (about $6.465 trillion) | September 30, 2026 | Asset holdings, distinct from reserve balances | H.4.1, October 8, 2026 |
The $2.948 trillion reserve figure is a weekly average, while the $6.465 trillion securities figure is a point-in-time amount. Neither is a direct measure of the Fed’s entire balance sheet. The July 2026 report’s $6.7 trillion total-assets figure also covers assets beyond securities held outright.
A practical way to read the Fed’s balance sheet
- Identify the line item. Check whether a release is discussing total assets, securities held outright, reserve balances, currency, the Treasury General Account or reverse repos.
- Check the date and frequency. H.4.1 can show a balance on a particular day or an average over a week; a Monetary Policy Report may describe a dated snapshot several months earlier.
- Separate assets from liabilities. Securities are assets. Reserve balances, currency and reverse repos are liabilities. A fall in one does not automatically equal a fall in the other.
- Look for reinvestment instructions. A runoff period allows principal to mature without full replacement. A reinvestment period replaces principal and may add purchases for reserve management.
- Account for other flows. Treasury transactions, currency demand and reverse-repo usage can change reserves independently of the securities portfolio.
Common misconceptions and how to avoid them
“The Fed is still shrinking its balance sheet in 2026.”
Not through the QT runoff program described here. Aggregate securities runoff ended December 1, 2025. Later Treasury-bill purchases were for reinvestment and reserve management.
“Every dollar of QT equals one less dollar of bank reserves.”
No. Reserve balances are only one liability, and other liabilities can absorb or add to balance-sheet changes.
“The $60 billion and $35 billion caps are today’s limits.”
No. They were the eventual monthly caps in the initial 2022 plan. Later adjustments and the 2025 end of runoff superseded them.
“Securities holdings, total assets and reserves are interchangeable terms.”
They are not. Securities holdings are a subset of assets; reserves are liabilities; total assets include items other than securities.
The bottom line for readers tracking QT
The Fed shrank its securities portfolio by letting principal payments mature and reinvesting only the amount above FOMC-set caps. That predictable runoff reduced holdings by about $2.2 trillion from June 2022 through October 2025, while changes in the Fed’s other liabilities determined how much reserve balances changed. Runoff ended December 1, 2025. Since then, the Fed has rolled over Treasury principal, reinvested agency principal in Treasury bills and purchased bills to maintain ample reserves, so current balance-sheet data must be interpreted as reserve management rather than ongoing QT.
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