Bank of America predicts that the Federal Reserve will increase its assets by $45 billion each month, expanding its balance sheet to $6.5 trillion

While the market is generally focused on the Federal Reserve's interest rate decision, traders have begun to pay attention to whether the Fed will expand its $6.5 trillion balance sheet. Michael Kelly, Global Multi-Asset Head at PineBridge Investments, stated that the market is watching whether the Fed will keep the balance sheet unchanged or start to expand it.

Bank of America strategists predict that the Fed will announce this week that it will begin expanding its balance sheet by $45 billion per month starting in January 2026. This includes purchasing at least $20 billion per month to achieve natural growth of the balance sheet, and purchasing $25 billion per month to reverse the excessive consumption of reserves, a move that will last at least until the first half of 2026. Roger Hallam, Global Rates Head at Vanguard's Fixed Income division, noted that in the long term, the Fed will naturally start buying short-term government bonds next year due to the growing demand for reserves in the economy. Cathie Wood previously mentioned the easing of the Fed's liquidity conditions and reiterated Ark Invest's long-term prediction of Bitcoin reaching $1.5 million in the future.