Fed ends QT December 2025: Liquidity tailwind and risks

Fed ends QT December 2025. Here’s the twist: analysts expect reserve management purchases 2026 in Treasury bills to keep reserves “ample,” removing a runoff headwind and nudging liquidity back into markets. That setup can lift risk assets, but it also intersects with already‑elevated leverage and narrow leadership.

Commentary notes the Fed has stopped its balance‑sheet rundown and warns that sustained liquidity alongside large basis‑trade exposures could invite overheating. Meanwhile, the goldman molavi 2026 outlook frames the next phase as a contest between liquidity, buybacks, and AI investment on one side, and stretched valuations plus credit friction on the other. According to available reports, buyback authorizations for 2026 and continued deficit spending add to the bull case. ^[1]

AI-driven valuations at extremes, leverage links deepen

You might be surprised that policymakers say AI enthusiasm pushed U.S. share prices to their most dotcom‑like levels. The Bank of England flagged that ai valuations stretched in the U.S., and it highlighted deeper connections between AI firms and credit markets. It also pointed to roughly £100bn of leveraged gilt‑repo positions as a stability risk. ^[2]

What no one is mentioning: when ai valuations stretched, even small demand shocks can propagate through financing chains. That’s especially true if funding costs move while liquidity is plentiful but unevenly distributed. ^[2]

UK capital easing and 2026 deregulation support risk-taking

The BoE’s stability update coincided with the first uk bank capital requirements cut since the financial crisis. Regulators cut the benchmark Tier 1 requirement to 13% from 14%, effective 2027, a signal that could loosen lending constraints at the margin. ^[2][4]

Moreover, uk bank capital requirements cut narratives reinforce the idea that policy is tilting toward growth and credit creation. Some commentary also suggests deregulation appears back in vogue, which can support risk‑taking but may amplify fragility if volatility spikes. ^[4][3]

Mixed AI demand signals: Microsoft cuts sales quotas

Near‑term demand isn’t all one way. A Reuters report said microsoft cuts ai sales quotas, and big tech lagged on the day. That doesn’t kill the thesis, but it tempers near‑term sentiment. ^[5]

Therefore, when microsoft cuts ai sales quotas meets elevated expectations, multiples can wobble even as long‑term AI spend remains large. Watch whether quotas reset again into Q1. ^[5]

Institutional caution: UK pensions trim U.S. mega-cap exposure

Several U.K. pension schemes recently pared U.S. equity exposure over AI‑bubble and concentration concerns. Managers cited heavy reliance on a narrow set of AI‑linked megacaps as a key risk if sentiment turns. That institutional de‑risking underscores how quickly leadership could change if liquidity fades. ^[6]

Timeline: Fed ends QT December 2025 and related market signals

• Dec 2: The BoE warns ai valuations stretched to dotcom‑era extremes, highlights leveraged repo exposures near £100bn. ^[2]
• Dec 2: UK confirms uk bank capital requirements cut to 13% benchmark Tier 1 effective 2027. ^[4]
• Dec 2: U.K. pensions dump some U.S. equities on AI‑bubble fears, citing megacap concentration. ^[6]
• Dec 3: RIP QT, the Fed’s runoff is over, analysts discuss reserve management purchases 2026 to keep reserves ample. ^[1]
• Dec 3: Commentary flags high hedge‑fund leverage in rates markets and the risk that liquidity could overheat things. ^[3]
• Dec 3: Stocks trade mixed as microsoft cuts ai sales quotas hits tech, investors eye services and payrolls data. ^[5]

What’s Next: 2026 bull-bear clash and liquidity path

The goldman molavi 2026 outlook casts 2026 as a “boxing match” between liquidity tailwinds and valuation/leverage headwinds. Molavi also points to sizable AI capex, around $600bn from the largest U.S. tech names, plus buyback authorizations that could fortify the bid. Still, narrow breadth and consumer‑credit stress could bite if momentum slips. ^[1]

Here’s how to track the outcome:

• Liquidity plumbing: If reserve management purchases 2026 start and scale via T‑bills, monitor how reserves and bill yields behave. Faster buys would likely support risk assets, slower moves could expose weak links. ^[1]
• Rules and capital: Follow regulatory timelines and the effective date of the uk bank capital requirements cut. Looser capital and any 2026 deregulatory steps may add risk appetite, but watch leverage metrics. ^[2][4]
• AI reality check: Balance ai valuations stretched with actual orders, pricing, and utilization rates. Quota resets like microsoft cuts ai sales quotas are small tells on near‑term demand. ^[2][5]
• Market breadth and funding: Track megacap leadership versus broader indexes, plus basis‑trade leverage and repo conditions that could transmit shocks. ^[3]

If liquidity flows outweigh valuation stress, bulls can run. But if leverage and narrow breadth dominate, even a friendly plumbing backdrop may not save late‑cycle risk.