Fed's Post-QT Liquidity Injection: Market Implications Amid Rate Cut Expectations

This analysis is based on the Morningstar (MarketWatch) report [1] published on December 2, 2025, highlighting the Fed’s “big money move”—ending QT and injecting liquidity—amid widespread investor anticipation of rate cuts. The Fed officially concluded QT on December 1, 2025, after withdrawing $2.4 trillion from the financial system since June 2022 [2]. It then injected $13.5 billion into banks via overnight repo agreements, the second-largest such operation since the COVID era [2].

Market reactions on December 2 were mixed but generally positive: U.S. equity indices closed with modest gains (S&P 500 +0.14%, NASDAQ +0.32%, Dow Jones Industrial Average +0.31%) [0], while Bitcoin rebounded 2% to $83,862 with 13% higher trading volume [2]. MicroStrategy (MSTR), a Bitcoin-heavy stock, saw pre-market gains [2].

Analyst sentiment is divided. Fundstrat’s Tom Lee predicts a crypto rally, noting a 17% market rise following the last QT halt [2], while others warn of an 81% probability of a BOJ rate hike—historically linked to crypto selloffs [2,5]. Additionally, there’s an 86% chance of a Fed rate cut by end-2025 [3], which, combined with the end of QT, could support sustained asset price recovery [3].

1. The Fed’s repo injection signals potential short-term banking system strain, described as an “emergency patch” for liquidity needs [3], even as the central bank ends QT to stabilize its balance sheet.
2. Money-market funds, identified as the “first domino” in a 2019-style liquidity crunch [1], are indirectly supported by the repo market stabilization [2].
3. The BOJ rate hike risk (81% probability in December 2025) [2] introduces global volatility potential that conflicts with the Fed’s liquidity support.

• Undisclosed liquidity stress
  : The size of the repo injection may indicate unreported banking system pressures [3].
• BOJ rate hike
  : A December 2025 hike could trigger selloffs in Bitcoin and broader risk assets [2].
• Fed policy uncertainty
  : Divergent views on inflation and labor risks may delay rate cuts or alter balance sheet plans [5].
• Money-market fund vulnerability
  : Without sustained repo market stability, funds remain exposed to 2019-style crunch risks [1,2].

• Reduced volatility
  : The end of QT marks a shift from liquidity contraction to balance sheet stabilization, which could lower volatility for risk assets [2].
• Asset price recovery
  : An 86% probability of a Fed rate cut by end-2025, combined with stopped liquidity contraction, may support sustained asset price growth [3].

• Fed ended QT on December 1, 2025, after withdrawing $2.4 trillion since June 2022 [2].
• Injected $13.5 billion via overnight repo—second-largest since COVID [2].
• Market reactions: Equities +0.14–0.32%, Bitcoin +2%, MSTR pre-market gains [0,2].
• Analyst divide: Crypto rally potential vs. BOJ rate hike risk [2,5].
• 86% probability of Fed rate cut by end-2025 [3].
• Key risks: Banking system stress, BOJ rate hike, policy uncertainty, money-market fund vulnerability [1-5].
• Key opportunities: Reduced market volatility, potential asset price recovery [2,3].