Fed independence doubts could spark quantitative easing cycle, says Man Group

Man Group’s warning comes amid heightened uncertainty over who will become the next Fed chair after Jerome Powell – a change that could stir doubts about the central bank’s commitment to controlling inflation. Should such doubts trigger a bond sell-off, the Fed might respond by buying long-term government bonds to lower borrowing costs and stabilize markets.

The backdrop to this scenario is the Fed’s recent shift: as of December 1, 2025, the Fed officially halted its quantitative tightening (QT) program, ending its efforts to shrink the central bank’s balance sheet by letting securities mature without reinvestment.

Quantitative easing – the reverse of QT – involves the Fed purchasing long-term securities such as Treasury bonds or mortgage-backed securities. That process injects liquidity into the financial system, lowers long-term interest rates, and typically supports asset prices.

Analysts say the combination of QT’s end, persistent inflation and political uncertainty over the next Fed leader makes a return to QE increasingly plausible. Some expect the Fed may begin what they call “reserve management purchases,” starting as early as January 2026 – a technical but significant step toward restoring central-bank balance-sheet expansion.

Still, not all Fed officials have embraced this path. Minutes from the Fed’s October 2025 policy meeting show near-unanimous support for ending QT, but no consensus yet on whether to resume QE or commit to long-term monetary easing.

For markets, a renewed QE cycle could reshape expectations for interest rates, inflation and asset valuations. Lower long-term yields may buoy bond and stock prices, while currencies, commodities and risk assets – including cryptocurrencies – could respond to increased liquidity and weaker yields on safe assets.

The stakes are also political. If markets perceive the Fed as losing independence under a new chair, a QE comeback could raise concerns over central-bank credibility – complicating the policy trade-off between stabilizing markets and maintaining long-term inflation control.