Good News from the Fed – They Are Reducing Bond Sales

March 19, 2025

By Robert Wiedemer

The market reacted positively today to the Fed’s meeting with the S&P closing up 1.08%. So, the S&P is only down 3.29% year to date.

But the really good news is that the Fed is reducing the amount of bonds it is selling (they are actually rolling off bonds that are maturing but I think it is easier to understand as simply selling bonds). So, instead of selling $25 billion worth of Treasuries each month, they are reducing that to $5 billion.

The Fed said this is a temporary action to deal with short term liquidity issues as a result of Congress not raising the debt ceiling. However, I suspect it will become permanent because I think the Fed is concerned we may get a repeat of what happened in 2019 when selling bonds caused the overnight interest rate to jump into double digits.

By reducing its bond sales now, it will try to prevent such a situation from occurring again. Ultimately, the Fed will have to stop all bond selling and start printing money to buy bonds in order to keep the 10 year rate from going too high. What’s too high? I suspect it’s 6% or maybe even 5.5%.

In May 2026, President Trump will appoint a new Fed Chairman, and it is likely that person will be more supportive of printing money to lower long term rates than current Chair Jerome Powell. So, even if the Fed does not start printing money before May 2026, I suspect it will do so at some point after the new Fed chair is appointed.