Federal Reserve to inject $16 billion in liquidity into U.S. markets this week
The Federal Reserve will inject $16,021,000,000 into the U.S. financial system this week through scheduled bill purchases, adding short-term liquidity that traders see as supportive for stocks.
U.S. equities are grinding higher ahead of the latest Fed meeting minutes, with the S&P 500 up 0.2%, the Nasdaq Composite up 0.2%, and the Dow Jones Industrial Average higher by 86 points.
Nvidia jumped 2% after Meta said it plans to deploy millions of Nvidia chips in new data centers, while Bitcoin remains stuck around $67,000.
21:09Markets steady, credit flowing, but financial vulnerabilities remain elevated
Markets barely moved during the period between meetings. What traders expect the Fed to do with rates did not really change. Treasury yields were mostly flat. Measures of expected inflation in the swap market were steady.
Broad stock indexes ticked up a bit, credit spreads stayed low compared with history, and one-month volatility on the S&P 500 ended about where it started at a moderate level.
Overseas, headlines caused some swings, but investors quickly stepped back in. Foreign stock markets rose and beat U.S. indexes again, continuing last year’s pattern.
Japanese government bond yields jumped on political uncertainty and worries about public finances, though the impact on other major bond markets was limited.
The dollar weakened against most currencies. The yen strengthened late in the period as traders speculated Japan could step into the currency market.
Short-term funding markets stayed calm. The start of reserve management purchases and Treasury bill paydowns helped ease pressure on money market rates. December’s 25 basis point rate cut showed up quickly in both secured and unsecured funding costs.
Year-end stress was lighter than many expected, helped by added liquidity, a smaller Treasury General Account, stronger use of the standing repo facility, and dealers arranging financing early.
In credit markets, borrowing costs for companies, households, and cities remained well below their 2023 highs but still above post-2008 averages.
Yields on corporate bonds, leveraged loans, and commercial mortgage-backed securities declined somewhat. Rates on 30-year fixed mortgages and new auto loans also edged down.
20:00Growth cools, inflation stays sticky as labor market steadies
Officials said real GDP continued expanding in 2025, though at a pace slightly below 2024. The labor market showed signs of stabilizing after gradual cooling, while consumer price inflation remained somewhat elevated.
The unemployment rate stood at 4.4% in December, unchanged from September. Average monthly payroll growth turned negative in the fourth quarter because of a sharp drop in government employment in October after workers rolled off following the deferred resignation program.
Payroll gains in November and December matched the third-quarter average. Average hourly earnings rose 3.8% over the 12 months through December, slightly below the prior year’s pace.
On prices, PCE inflation was 2.8% in November, up from 2.6% a year earlier. Core PCE, which strips out food and energy, was 2.8%, down from 3.0% the previous year.
Core services inflation eased, led by slower growth in housing services, while core goods inflation picked up, largely tied to higher tariffs. In December, CPI inflation was 2.7% and core CPI was 2.6%, both below year-earlier readings.
Staff estimates based on CPI data put December PCE inflation at 2.9% and core PCE at 3.0%. Officials also flagged data collection issues during the government shutdown that likely pushed down reported CPI and PCE levels in November and December.
Economic output posted a solid gain in the third quarter but slowed in the fourth. The shutdown was estimated to shave about 1 percentage point off fourth-quarter GDP growth.
Real private domestic final purchases, which include consumer spending and private fixed investment, grew at the same average pace as GDP over the first three quarters and slowed in the fourth, though less sharply than headline GDP.
In trade, nominal goods exports increased in October, while imports fell sharply after declining in the third quarter. The goods trade deficit narrowed further following a large widening early in 2025 when companies front-loaded imports ahead of tariff hikes.
Abroad, foreign economic activity expanded below trend in the second half of last year. U.S. tariffs weighed on manufacturing in Canada and Mexico, especially in autos, aluminum, and steel.
Some emerging Asian economies saw surging high-tech exports tied to AI demand. In China, growth was supported by stronger exports to markets outside the United States.
Inflation in many foreign economies ran near central bank targets, though food and services pressures persisted in some places. The Bank of England and the Bank of Mexico cut policy rates, most others held steady, and the Bank of Japan raised its key rate toward what it sees as neutral.
20:00Mortgage moves, tech underperformance and steady money markets shape the outlook
The announcement that Fannie Mae and Freddie Mac may expand their mortgage investment portfolios drew heavy attention across markets. Yields on mortgage-backed securities fell notably relative to comparable Treasury yields right after the news.
Even so, the manager said this is unlikely to spark a meaningful wave of refinancing because current mortgage rates remain well above the weighted average rate on existing loans.
In equities, the biggest technology companies continued to lag the broader market as investors focused on stretched valuations and large capital spending plans.
Stripping out those firms, the S&P 500 rose nearly 3% over the intermeeting period. Cyclical sectors and smaller-cap indexes outperformed even that.
On the currency front, private-sector forecasts still call for U.S. dollar depreciation this year, largely because many expect deeper rate cuts in the United States than in other advanced economies.
That depreciation outlook has moderated in recent months as growth expectations for the U.S. improved relative to other major economies.
In the days before the meeting, the dollar fell sharply after reports that the Desk requested indicative “rate checks” on the dollar–yen exchange rate.
The manager clarified those requests were made strictly on behalf of the U.S. Treasury, with the New York Fed acting as fiscal agent.
In money markets, the effective federal funds rate stayed steady just below the interest rate paid on reserve balances. Pressures in repo markets eased overall. Repo rates did rise at year-end, but the squeeze was milder than many expected.
Market participants credited stronger liquidity from ongoing reserve management purchases, a lower Treasury General Account, adjustments to standing repo operations, wider use of centrally cleared repo, and better year-end preparation.
Changes introduced in December to standing repo operations appear to have boosted participation. Contacts pointed to the removal of the aggregate cap, clearer messaging that the facility supports monetary policy implementation, and the Chair’s comment that usage is appropriate when “economically sensible” as key reasons.
Looking ahead, with reserve management purchases continuing, bank reserves are projected to rise into early April before falling sharply as tax payments flow into the Treasury General Account.
At their low point, reserves are expected to be similar to year-end levels, and for most of the forecast horizon they are projected to hover near $3 trillion.
19:44Fed locks in New York operations team as markets price two rate cuts
The Federal Open Market Committee voted unanimously to select the Federal Reserve Bank of New York to execute transactions for the System Open Market Account, or SOMA.
Officials also unanimously chose Roberto Perli as manager and Julie Ann Remache as deputy manager of SOMA, subject to approval from the New York Fed. A secretary’s note confirmed the bank later signed off on both selections.
Policymakers approved the FOMC Authorizations and Continuing Directives for Open Market Operations, making minor adjustments to the domestic directive so it aligns with guidance on standing repo operations issued after the December 2025 meeting.
All participants reaffirmed four key internal policies covering investment and trading rules, security of FOMC information, and external communications for both committee members and Federal Reserve staff.
The committee also completed its annual review of the Statement on Longer-Run Goals and Monetary Policy Strategy and voted unanimously to reaffirm it without changes.
In the market outlook discussion, the SOMA manager said respondents to the Open Market Desk Survey still see the economy as resilient. Forecasts for real GDP growth in 2026 were revised higher, while expectations for headline PCE inflation and the unemployment rate stayed largely unchanged.
Market pricing and survey responses both point to one to two 25 basis point rate cuts this year, with the median path in the survey indicating two 25 basis point cuts.
On the rates side, shorter-term Treasury yields were little changed, while longer-term yields rose by a few basis points, leading to a slightly steeper curve.
Near-term inflation compensation declined following softer-than-expected CPI data, lower energy prices, and less tariff pass-through than anticipated.
Forward rates suggest inflation will stabilize near current levels through the rest of the year, and model-based short-term inflation expectations edged lower with projections pointing to further modest declines.
The Treasury market continued functioning smoothly with low volatility, though the manager flagged the growing reliance on repo financing and stressed that repo market stability remains critical for orderly Treasury trading.
The Federal Reserve will inject $16,021,000,000 into the economy this week through scheduled Treasury bill purchases, according to its latest operations calendar.
The plan includes two operations of roughly $8.01 billion each focused on short-term bills, adding fresh liquidity into the system. Traders see that as supportive for risk assets.
Source: FOMC
Stocks moved higher on Wednesday, led by tech, as investors waited for the release of the minutes from the Fed’s most recent policy meeting.
The S&P 500 climbed 0.2%, the Nasdaq Composite rose 0.2%, and the Dow Jones Industrial Average gained 86 points, also 0.2%.
Still, the upside stayed limited as oil prices jumped. Markets are reacting to fresh developments in U.S.–Iran nuclear talks. Vice President JD Vance said Tuesday that Iran failed to address U.S. red lines and warned that military action remains a possibility.
On the corporate side, Nvidia rose 2% after Meta said it will use millions of Nvidia chips in its data center buildout.
Another “Magnificent Seven” name, Amazon, climbed about 1% after filings showed Bill Ackman’s Pershing Square increased its stake in the company by 65% in the fourth quarter, making it the fund’s third-largest holding.
The move follows Amazon snapping a nine-day losing streak.
Micron Technology also advanced after David Tepper’s Appaloosa Management boosted its position in the chipmaker.
Meanwhile, Bitcoin remains stuck around $67,000, showing little reaction so far to the broader liquidity story.
What to know
The Federal Reserve’s $16.02 billion liquidity injection is lifting stocks slightly, but rising U.S.-Iran tensions and a stalled Bitcoin at $67,000 are keeping markets cautious.
