Major global central banks to keep tightening their balance sheets despite the end of Fed QT.
World’s major central banks are set to drain liquidity from financial markets in 2026, even as the U.S. Federal Reserve ends its quantitative tightening (QT) program.
While the Fed has paused QT after concluding its balance sheet runoff on December 1, the European Central Bank (ECB), Bank of England (BoE), and Bank of Japan (BoJ) are expected to accelerate asset reductions, collectively shrinking their balance sheets by roughly $1.2 trillion in 2026, according to The Kobeissi Letter.
This means that even with U.S. monetary policy stabilizing, global liquidity conditions remain restrictive. The Kobeissi Letter notes that the ECB and BoJ run-offs could nearly offset the effects of the Fed’s pause, signaling continued tightening in the world’s financial system.
Looking at the broader picture, the so-called G4 central banks (the Fed, ECB, BoE, and BoJ) reduced combined assets by $1.4 trillion in 2024, with another $1.3 trillion projected by the end of 2025. These reductions are part of a multi-year normalization after the pandemic.
Between 2020 and 2021, G4 central banks purchased $7.7 trillion in assets to stabilize markets during COVID-19. If current projections hold, they will have unwound $5 trillion between 2023 and 2026, reversing roughly 65% of the pandemic-era stimulus.
Global liquidity is the lifeblood of financial markets. When central banks shrink their balance sheets, they are effectively removing cash from the system, which can slow lending, reduce speculative activity, and increase market volatility.
For investors, this means less capital available, higher volatility, and reduced risk appetite. Market narratives or hype matter less when central banks are actively withdrawing support.
Riskier assets, like tech stocks and crypto, that thrive on low rates and ample liquidity, may feel more pressure and face prolonged adjustment.
Why This Matters
The unwinding of trillions in pandemic-era stimulus means markets may face tighter conditions for years, not months. Investors should prepare for a sustained phase of slower capital flows and muted gains.
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