The Federal Reserve announces monthly purchases of $40 billion in U.S. Treasury bonds, which the market interprets as quantitative easing. However, this is actually a Reserve Management Purchase plan (RMP), aimed at preventing operational issues in the financial system rather than stimulating the economy. This article analyzes the fundamental differences between RMP and QE and their market impacts. The content originates from an article by Krüger, compiled, translated, and written by Techflow.
(Background briefing: The Fed’s 1 basis point rate cut meets expectations! The dot plot suggests only a 1 basis point cut in 2026. Bitcoin and Ethereum are fluctuating, and U.S. stocks are rising intraday.)
(Additional background: The printing press is back in action! The Federal Reserve has launched the “Reserve Management Purchase Plan,” starting 12/12, to buy $40 billion in short-term government bonds within 30 days.)

Table of Contents

• What is Quantitative Easing (QE)?
  • Three mechanical conditions
  • Functional conditions
• What is Reserve Management Purchase (RMP)?
  • POMO (Scarce Reserves Era)
  • RMP (Ample Reserves Era)
• Why activate RMP now: TGA and tax season impacts
• Is RMP really QE?
• When will RMP turn into actual QE?
• Conclusion: Market impact

The U.S. Federal Reserve has just committed to purchasing $40 billion in U.S. Treasuries monthly. The market has already started shouting “Quantitative Easing (QE),” although on the surface, this number seems like a stimulus signal. However, the underlying mechanism tells a different story. Powell’s move is not to stimulate the economy but to prevent issues in the financial system’s operation.

Below is an analysis of the structural differences between the Fed’s Reserve Management Purchase plan (RMP) and QE, as well as their potential impacts.

What is Quantitative Easing (QE)?

To strictly define QE and distinguish it from standard open market operations, the following conditions must be met:

Three Mechanical Conditions

2. Mechanism (Asset Purchases): The central bank creates new reserves to buy assets, typically government bonds.
3. Scale (Large-Scale): The purchase volume is significant relative to the total market size, aiming to inject substantial liquidity into the system rather than fine-tuning.
4. Target (Quantity Over Price): Standard policies adjust supply to achieve a specific interest rate (price), whereas QE involves purchasing a set quantity of assets (quantity), regardless of the final interest rate.

Functional Conditions

• Net Liquidity (QE): The speed of asset purchases must exceed the growth rate of non-reserve liabilities (such as currency and the Treasury’s general account). Its goal is to forcibly inject excess liquidity into the system, not merely provide needed liquidity.

What is Reserve Management Purchase (RMP)?

RMP is essentially the modern successor to Permanent Open Market Operations (POMO), which was the standard procedure from the 1920s until 2007. However, since 2007, the composition of the Fed’s liabilities has changed dramatically, requiring adjustments to operational scope.

POMO (Scarce Reserves Era)

Before 2008, the Fed’s main liability was physical currency in circulation; other liabilities were fewer and more predictable. Under POMO, the Fed’s securities purchases were merely to meet the gradual demand for physical cash. These operations were calibrated to be liquidity-neutral and modest in scale, not distorting market prices or suppressing yields.

RMP (Ample Reserves Era)

Today, physical currency accounts for only a small part of the Fed’s liabilities. The main liabilities are large and volatile accounts such as the Treasury General Account (TGA) and bank reserves. Under RMP, the Fed purchases short-term government bonds (T-Bills) to buffer these fluctuations and “maintain ample reserve supply.” Similar to POMO, RMP is designed to be liquidity-neutral.

Why activate RMP now: TGA and tax season impacts

The reason Powell implements the Reserve Management Purchase plan (RMP) is to address a specific financial system issue: the withdrawal of liquidity from the TGA (Treasury General Account).

Operational Principle: When individuals and businesses pay taxes (especially around December and April tax deadlines), cash (reserves) shifts from their bank accounts to the Fed’s government check account (TGA), which is outside the commercial banking system.

Impact: This transfer pulls liquidity out of the banking system. If reserves fall too low, banks may stop lending to each other, potentially triggering a repo market crisis (similar to September 2019).

Solution: The Fed now initiates RMP to offset this liquidity drain. They create $40 billion in new reserves to replace the liquidity that will be locked in TGA.

Without RMP: Tax payments would tighten the financial environment (bearish). With RMP: The impact of tax payments is neutralized.

Is RMP really QE?

From a technical perspective: Yes. If you are a strict monetarist, RMP fits the definition of QE. It satisfies the three mechanical conditions: large-scale asset purchases via new reserves (monthly $40 billion), targeting quantity over price.

From a functional perspective: No. RMP’s role is stability, whereas QE’s role is stimulation. RMP does not significantly ease the financial environment but prevents further tightening during events like TGA replenishment. Since the economy naturally withdraws liquidity, RMP must operate continuously to maintain the status quo.

When will RMP turn into real QE?

RMP becomes full-scale QE if either of the following two variables change:

A. Duration Change: If RMP begins purchasing long-term bonds or mortgage-backed securities (MBS), it becomes QE. Doing so removes market interest rate (duration) risk, lowers yields, and pushes investors toward higher-risk assets, raising asset prices.

B. Quantity Change: If natural demand for reserves slows (e.g., TGA stops growing), but the Fed still purchases $40 billion monthly, RMP turns into QE. At this point, the Fed injects excess liquidity unattached to demand, which will inevitably flow into financial assets.

Conclusion: Market Impact

RMP aims to prevent the liquidity drain during tax seasons from affecting asset prices. Although technically neutral, it conveys a psychological signal: “The Fed Put” has been activated. This announcement is positive for risk assets and provides a “mild tailwind.” By committing to $40 billion monthly purchases, the Fed effectively underpins the liquidity of the banking system. It eliminates tail risks of a repo crisis and boosts market leverage confidence.

Note that RMP is a stabilizer, not a stimulator. Since RMP only replaces liquidity drained by TGA rather than expanding the net monetary base, it should not be mistaken for systemic easing of QE.

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Tags: Reserve Management Purchase Federal Reserve Monetary Policy Quantitative Easing Financial Markets