Wall Street expects the Federal Reserve to cautiously reduce liquidity support to avoid disrupting the financing market.

Against the backdrop of continuing uncertainty in the short-term funding market, Wall Street generally expects the Federal Reserve to gradually and cautiously reduce its liquidity injection program used to relieve financing pressures. By the end of 2025, the Federal Reserve unexpectedly halted its balance sheet reduction (quantitative tightening) and instead injected liquidity into the market by purchasing short-term Treasury bills with maturities of less than one year. Since December of last year, the Fed has been purchasing around $40 billion in short-term Treasury bills each month to alleviate short-term interest rate pressure. Federal Reserve Chairman Powell stated at the time that this move was aimed at "front-loading" liquidity to deal with the funding fluctuations brought about by the April tax season. Officials responsible for the management of the asset portfolio at the New York Fed recently indicated that the size of future bond purchases may "significantly decrease", and the adjustment process from mid-April to mid-May will be "relatively gentle" to address uncertainty factors. Market expectations are that the Federal Reserve will announce its latest operational arrangements on Monday, providing guidance for the future policy path. Analysts point out that the Federal Reserve's cumulative bond purchases since December of last year have reached around $217 billion, largely ensuring the smooth operation of the financing market at the beginning of 2026. Especially during tax season, the flow of funds generated by U.S. companies and individuals paying taxes often impacts bank reserve levels and overnight rates. "The key concern for the market is how quickly the Federal Reserve will exit the current state," institutional strategists said. "Based on previous statements, policymakers are more inclined to proceed steadily to avoid operational mistakes." However, others believe that the Federal Reserve has more room to significantly reduce bond purchases. Some analysis points out that with the end of tax season, bank system reserves will still remain at relatively ample levels (around $3 trillion), and there will be no immediate need to continue expanding liquidity buffers.