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Yes. The Federal Reserve can lower its policy-rate target while allowing securities to run off its balance sheet.
It did both in September 2024: the Federal Open Market Committee (FOMC) cut its federal funds target range and continued reducing its securities holdings. That shows rate cuts and quantitative tightening (QT) can happen together; it does not mean QT is still under way. September 2024 FOMC statement
As of 22 October 2026, the Fed was no longer reducing its aggregate securities holdings through runoff. That process ended on 1 December 2025. Under the September 2026 instructions, principal payments from Treasury and agency holdings remain invested, with additional purchases allowed when appropriate to maintain ample reserves. October 2025 statement, September 2026 implementation note
Rate policy and balance-sheet policy answer different questions
A rate cut changes the target range for the federal funds rate, an overnight borrowing rate between depository institutions. It is not a rate set directly for household loans. About the FOMC
Securities runoff changes the amount of securities the Fed holds by allowing some principal payments to go unreinvested. The Fed's 2022 runoff plan explicitly used limits on reinvestment rather than relying on outright securities sales. Fed balance-sheet reduction plan
| Instrument | What changes | What to look for |
|---|---|---|
| Federal funds target range | An interest-rate range, stated in percent | The FOMC's rate decision and its effective date |
| Securities runoff | Securities holdings, measured in dollars | Principal repayments, rollover, reinvestment and any monthly runoff caps |
The FOMC uses its rate target as the main tool for making monetary policy tighter or looser. Interest paid on reserve balances helps implement that target in an ample-reserves system. The Fed can therefore change the rates it sets while following separate instructions for securities holdings. FOMC policy principles, interest on reserve balances
The instruments are separate, but that does not make their economic effects unrelated. The useful distinction is narrower: a lower target range does not mathematically require larger securities holdings. Nor does a dollar amount of runoff translate into a fixed number of basis points of rate tightening.
A real example: September 2024
On 18 September 2024, the FOMC lowered its target range by 0.50 percentage point, or 50 basis points, to 4.75%–5.00%. In the same statement, it said the reduction in Treasury securities, agency debt and agency mortgage-backed securities would continue. FOMC statement
The implementation note, effective 19 September, retained monthly runoff caps of $25 billion for Treasuries and $35 billion for agency debt and agency mortgage-backed securities. Principal above those caps was rolled over or reinvested under the stated instructions. September 2024 implementation note
Those caps were limits, not a promise that holdings would decline by exactly $60 billion every month. Actual principal payments and the operational instructions mattered. The key evidence is the policy combination: a rate cut alongside continued securities runoff.
A hypothetical rate cut with continuing runoff
Imagine this simplified policy package over one period. Every number is invented; none describes a current Fed setting.
| Item | Before | Hypothetical change | After |
|---|---|---|---|
| Federal funds target range | 5.00%–5.25% | Both bounds fall by 0.25 percentage point | 4.75%–5.00% |
| Securities principal held | $100 billion | $10 billion is repaid and $6 billion is reinvested | $96 billion |
In the securities example, net runoff is $10 billion − $6 billion = $4 billion. Ending holdings are $100 billion − $10 billion + $6 billion = $96 billion.
The rate target falls while the securities stock also falls. There is no accounting contradiction: the percentage range and the dollar holdings are different measurements.
This example tracks principal only. It excludes valuation changes, premiums, discounts, interest income, other assets and other transactions. It is not a full Federal Reserve balance-sheet model. It also does not say that $4 billion of runoff cancels a 0.25-percentage-point cut, or that bank reserves must decline by exactly $4 billion during the same period.
What changed after aggregate runoff ended?
The FOMC announced on 29 October 2025 that the reduction in aggregate securities holdings would end on 1 December. From that date, the instructions replaced capped reinvestment with full Treasury rollover and reinvestment of agency principal into Treasury bills. October 2025 statement, implementation note
The latest implementation note available on 22 October 2026 was issued on 16 September and took effect on 17 September. It directs the New York Fed's trading desk to:
- Roll over all principal payments from the Fed's Treasury holdings at auction.
- Reinvest all principal payments from agency securities into Treasury bills.
- When appropriate, buy Treasury bills and, if needed, other Treasuries with three years or less remaining to maturity to maintain ample reserves. September 2026 implementation note, FOMC meeting records
An individual category, such as agency mortgage-backed securities, can still shrink while its principal is reinvested in Treasuries. That changes the portfolio's composition; it does not by itself demonstrate a renewed reduction in aggregate securities holdings. The New York Fed separately identifies agency-principal reinvestment and reserve-management purchases. New York Fed purchase FAQs
Are reserve-management purchases the same as QE?
No. The purpose matters. In January 2026, Fed Vice Chair Philip Jefferson distinguished purchases intended to maintain ample reserves and effective short-term rate control from quantitative easing (QE), whose aim is to stimulate the economy by putting downward pressure on longer-term rates. A purchase headline alone is not enough to classify an operation as QE. Jefferson's monetary-policy implementation speech
Does ending runoff keep bank reserves constant?
No. Securities are assets on the Fed's balance sheet; bank reserve balances are liabilities. Other liabilities, including currency and the Treasury General Account, also affect how reserves change. The Fed's runoff plan anticipated that reserves could continue falling for a time after securities runoff stopped. Fed balance-sheet reduction plan, Jefferson's explanation
How to read the next Fed announcement
Read the rate decision and balance-sheet instructions separately:
- Find the target range and effective date. Distinguish the announced target from an observed market rate.
- Check what happens to Treasury principal and agency principal. Look for full reinvestment, partial reinvestment, runoff caps or purchases.
- Check the stated purpose and scope. Maintaining reserves, changing portfolio composition and reducing aggregate holdings are different operations.
Use the statement and its accompanying implementation note together. A headline about a rate cut cannot establish the balance-sheet policy, and a headline about purchases cannot establish that QE has begun. FOMC statements and implementation notes
Frequently asked questions
Does a rate cut automatically end QT?
No. A change in the target range does not, by itself, tell you how securities principal will be treated. Check the accompanying balance-sheet instructions.
Do rate cuts and QT cancel each other out?
There is no fixed arithmetic conversion. One is a change in an interest-rate target; the other concerns securities holdings. The hypothetical example shows that both can occur, not that their economic effects are equal and opposite.
Does this combination predict what stocks, bonds or crypto will do?
Neither the accounting example nor the fact that rate cuts and QT have happened together is enough to predict market prices. This guide explains policy mechanics, not an investment or trading strategy.
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Sources
- FOMC statement, 18 September 2024.
- Implementation note, 18 September 2024, effective 19 September 2024.
- FOMC statement, 29 October 2025.
- Implementation note, 29 October 2025, including the changes effective 1 December 2025.
- Implementation note, 16 September 2026, effective 17 September 2026.
- Plans for reducing the Fed's balance sheet, 4 May 2022.
- Philip Jefferson, Economic Outlook and Monetary Policy Implementation, 16 January 2026, monetary-policy implementation section.
- New York Fed, Reserve Management Purchases and Reinvestment Purchases FAQs, dated 17 June 2026.
- FOMC calendars, statements and meeting records, checked 22 October 2026.
- FOMC principles for reducing the balance sheet, 26 January 2022.
- Federal Reserve, Interest on Reserve Balances, checked 22 October 2026.
- Federal Reserve, About the FOMC, checked 22 October 2026.
Policy context checked on 22 October 2026. Dates below are the sources' publication dates unless otherwise stated.
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