Fed Ends Quantitative Tightening (QT) Amid Return to Profitability: Market Reactions and Outlook

On December 1, 2025, the U.S. Federal Reserve formally ended its 3-year Quantitative Tightening (QT) program, a significant policy shift that follows a $2.4 trillion reduction in its System Open Market Account (SOMA) portfolio since June 2022 [4]. The Fed’s decision was driven by money market conditions signaling that reserve levels have returned to “ample” territory, prompting the central bank to halt portfolio reductions and reinvest maturities, stabilizing the balance sheet at approximately $6.45 trillion [4].

Concurrently, the Fed reported a return to positive operating income for the first time in 3 years, with a projected $2 billion profit this quarter following cumulative losses of $243.8 billion [4]. However, Treasury remittances will not resume for 4-5 years as the Fed offsets a $243 billion deferred asset [4].

In response to these developments, U.S. stock futures were little changed pre-market, with the S&P 500 and Nasdaq-100 futures hovering near the flatline and Dow Jones futures seesawing modestly [1]. Year-to-date, the S&P 500 is up ~16% and ~1% below its late-October all-time high [2]. Early session sector performance showed Energy (+1.17%) and Consumer Defensive (+0.89%) leading gains, while Financial Services (-0.004%) and Healthcare (-0.017%) lagged slightly [0]. Treasury yields edged higher: the 10-year yield rose 2 basis points (bps) to 4.044%, the 30-year yield climbed 3 bps to 4.702%, and the 2-year yield remained flat near 3.497% [3].

Market expectations for a December rate cut also intensified, with the CME FedWatch Tool showing an 88% chance of a 25 bps cut at the December 9-10 FOMC meeting, up from 85% on November 28 [3]. Major banks like J.P. Morgan now forecast a December cut, driven by dovish Fed commentary and cooling economic data [1].

1. Fed Profitability vs. Treasury Remittances
   : The Fed’s return to profitability is a positive operational milestone, but the deferred asset will delay Treasury remittances for 4-5 years, which could indirectly affect government revenues over the medium term [4].
2. Sector Performance Drivers
   : Energy sector gains are likely supported by supply-side dynamics separate from the Fed’s policy shift, highlighting the complexity of market drivers beyond monetary policy [0].
3. Rate Cut Expectation Resilience
   : Despite slightly higher Treasury yields, the market maintains an 88% probability of a December rate cut, indicating strong confidence in dovish FOMC action [3].
4. Year-End Market Positioning
   : The QT end and rate cut bets coincide with the final month of 2025, potentially influencing institutional portfolio adjustments and year-end market performance [1, 2].

• Policy Disappointment
  : If the FOMC’s December guidance is less dovish than expected, market sentiment could shift sharply, leading to volatility [3].
• Economic Data Surprises
  : Upcoming releases (ISM Manufacturing PMI, ADP Employment Report, Core PCE Inflation) could alter rate cut expectations if they deviate from market forecasts [2].
• Sector Volatility
  : Sectors sensitive to interest rates (e.g., Financial Services) may face continued pressure if rate cuts materialize as expected [0].

• Interest Rate-Sensitive Sectors
  : Real Estate and Utilities sectors could benefit from lower rates if the December cut is implemented [0].
• Consumer Resilience
  : Consumer Defensive sectors may continue to perform amid ongoing economic resilience, as indicated by early session gains [0].
• Earnings Insights
  : Quarterly results from Salesforce, Kroger, and Dollar Tree this week will provide valuable data on enterprise IT spending and consumer behavior [2].

• The Fed ended its 3-year QT program, stabilizing its balance sheet at ~$6.45 trillion after a $2.4 trillion reduction [4].
• Operating income turned positive for the first time in 3 years, but Treasury remittances will not resume for 4-5 years [4].
• S&P 500 year-to-date returns stand at ~16%, ~1% below the late-October all-time high [2].
• CME FedWatch Tool indicates an 88% chance of a 25 bps December rate cut [3].
• Energy (+1.17%) and Consumer Defensive (+0.89%) sectors led early session gains [0].
• Key upcoming catalysts include the December 9-10 FOMC meeting, critical economic data releases, and earnings from major companies [2].