*“The QE Infinity Train to Nowhere”* Copyright 2025, NextLevelCorporate. All rights reserved.

TL; DR

The Fed cut the federal funds (FFR) rate by 25 basis points to a range of 3.50% to 3.75%, but the move is less important than liquidity flows.
Liquidity will now be added under two different methods:
- The Fed will inject roughly $40 billion per month into short-term Treasuries through RMP, increasing system-wide liquidity.
- As banking regulators relax the eSLR, up to $2.1 trillion in balance-sheet capacity for Treasury market-making will be created amongst the 8 largest U.S. banks. Banks will buy Treasuries from the Treasury.
Together, RMP and eSLR relief mark a coordinated effort to materially increase liquidity, stabilise funding markets, and push risk asset prices higher. Essentially, Treasury is Fed, Fed is Treasury (TIFFIT).
Understanding this will be key to positioning your personal investments and designing your corporate development strategies.

At the December FOMC meeting

At the 10 December 2025 FOMC meeting, the U.S. Federal Reserve (the Fed) cut the federal funds rate (FFR) by 25 basis points to a range of 3.50% to 3.75%.

Headlines made a fuss, complaining about uncertainty and focussing on the unimportant stuff, but the interest rate narrative has become a distraction.

The real story is TIFFIT, a concept I coined back in May 2024 to describe a non-independent Fed operating under the influence of the Treasury, where fiscal and monetary policies are effectively intertwined.

Hence, Treasury is Fed, Fed is Treasury, or TIFFIT (you can get a refresher here).

In brief terms, the Fed announced that it’s going to expand its balance sheet by restarting quantitative easing (QE), which it is now calling Reserve Management Purchases (RMP), with the intent of buying $40 billion per month in short-term Treasury bills.

This is the QE that isn’t QE that I’ve been foreshadowing and writing about for months. The new acronym? RMP.

Unimaginative? Yes, but it’s not QE, is it? Er, yes, it is.

Modern QE under my TIFFIT regime is a financial chameleon and for now happens to be called RMP.

Nomenclature aside, the QE Infinity Train to nowhere just got a few more shovel-loads of fuel. Instead of $5 billion of coal being held back from the train’s boilers each month (under the recently terminated quantitative tightening process), the net effect is ~$45 billion in extra liquidity in the form of reserves.

As I’ve always explained, liquidity is what truly moves markets, not small headline rate cuts.

Where eSLR comes in

At the same time, eSLR relief is on the horizon. Without diving into technical detail, banks will be required to hold more Treasuries, buying directly from the Treasury rather than through the Fed, effectively adding coal to the QE Infinity Train alongside purchases by the Fed.

According to a Congressional release in August 2025, relaxing the eSLR gives the eight biggest U.S. banks a modest but meaningful capital release of around $13 billion, allows roughly $200 billion to be shifted from bank subsidiaries up to their parent companies for more flexible deployment, and opens up as much as $2.1 trillion in additional balance-sheet capacity for Treasury market-making.

In practice, this creates a more adaptable banking system and a stronger liquidity buffer for the Treasury market, with only a marginal increase in overall system risk.

Put together, these actions will add more coal to the QE Infinity Train’s boilers. Once the Fed starts buying and as banks hold larger amounts of Treasuries to refinance debt and fund new spending, yields are likely to fall sharply, almost regardless of the FFR.

Why official rates are losing relevance

The discussion above illustrates why official rates (i.e., the FFR) and dot plots are losing their relevance.

It’s liquidity that really matters (you can get a refresher here) and it’s the buying and selling of Treasuries in the market, where bonds also serve as collateral for new reserve creation that sets the clearing rate for each maturity. And when you line up the clearing rate for each maturity, it forms the yield curve.

Essentially, yields are the true cost of capital (not the FFR) and the risk-free rate used in cost of capital calculations comes from the 10-year Treasury, set by the bond market, not the Fed.

Treasury yields and the shape of the yield curve tell us all we need to know about risk.

Three possible yield curve paths

Let’s look at three possible yield curves for next year.

One more Fed cut and short-term yields dip slightly, medium-term yields stay near neutral (~3%), and long-term yields rise if inflation expectations hold, creating a gentle downward slope in the front end.
Two more cuts and short-term and medium-term yields fall further, and long-term yields rise if inflation sticks, producing a mild “V” shape.
My TIFFIT case (market under-pricing this) and RMP refuels the QE Infinity Train and eSLR relief supercharges it. Banks buy large volumes of Treasuries directly, potentially collapsing short-term and medium-term yields, flattening or inverting the curve in the middle while long-term yields rise with growth and inflation expectations. Risk asset prices increase due to net liquidity inflow.

Radical TIFFIT yield curve, probable outcome?

With $40 trillion in government debt to refinance plus new spending to monetise, these forces could create a radical curve under my TIFFIT case.

Short-term yields may freefall under RMP and bank demand once the eSLR is relaxed. Long-term yields could rise because additional government spending keeps inflation expectations alive. I think the market is underestimating this TIFFIT case.

The end result could be a steeply inverted or sharply “kinked” curve, with very low short-term rates and rising long-term rates, even if the Fed keeps cutting. Pretty radical, but with a probability well above 0%.

Why the RMP and eSLR matters

This isn’t about the Fed cutting rates.

What truly moves markets is the structural plumbing, like RMP liquidity, Treasury debt issuance, eSLR relief and banks buying and holding paper.

Under TIFFIT, Fed rate decisions are largely background noise. The real signal is in bond yields, credit flows, and liquidity. And as I explained a couple of weeks ago, it looks like liquidity is poised to lift, albeit it won’t be a straight line and it will occur over phases.

So, for liquidity watchers, today’s note is a heads-up on policy and structural liquidity dynamics.

Don’t be distracted by the FFR. Rather, keep an eye on how and when liquidity flows in and out of financial markets because that will be your key to anticipating what will move the needle for your personal investment portfolio and corporate development strategy.

See you in the market and feel free to reach out for clarification.

Mike

The Fed cut was the smokescreen. The real action is TIFFIT liquidity.