Last week, an article predicted that "RMP" would dominate market discussions. As expected, the Federal Reserve announced the launch of its Reserve Management Purchases (RMP) program this week, potentially heralding a liquidity injection bonanza for Wall Street.

According to trading desks, the Fed announced overnight that it would begin purchasing short-term Treasury bills as needed to maintain ample reserve supplies. The New York Fed simultaneously released a statement outlining plans to buy $40 billion in short-term Treasuries over the next 30 days—its latest move since officially ending balance sheet reduction last week. This decision comes amid unsettling rate volatility in the $12 trillion U.S. repo market, with ongoing money market turbulence forcing the Fed to act swiftly.

While officials repeatedly stress that this reserve-maintenance measure is "not quantitative easing (QE)," markets have already voted with their actions: U.S. Treasuries, stocks, Bitcoin, gold, and oil all rallied, while the dollar weakened—a classic "QE trade" as investors attempt to replicate the gains from 2019’s liquidity surge.

The impact on short-term funding markets could be immediate. Based on 2019’s experience, liquidity injections will quickly depress the Secured Overnight Financing Rate (SOFR), while the Federal Funds Rate (FF) responds more sluggishly—creating a notable arbitrage opportunity for traders.

**$40 Billion Monthly Purchases Kick Off**

The New York Fed detailed the RMP framework in Wednesday’s announcement. Per FOMC guidance, it will buy short-term Treasuries in secondary markets, including notes with remaining maturities up to three years if necessary, to sustain ample reserves. Purchase sizes will adjust based on projected demand trends and seasonal fluctuations.

Monthly RMP figures will be announced around the ninth business day of each month, alongside tentative 30-day purchase plans. The trading desk’s first schedule, set for December 11, outlines roughly $40 billion in short-term Treasury buys starting December 12.

The New York Fed expects RMP volumes to remain elevated in coming months to offset a projected April surge in non-reserve liabilities. Afterward, purchases may slow significantly per seasonal shifts in Fed liabilities, with adjustments tied to reserve supply outlooks and market conditions.

The FOMC stated: "The Committee views reserve balances as having declined to ample levels and will begin purchasing Treasury bills to sustain ample reserves as needed." This marks a pivotal shift in the Fed’s balance sheet strategy.

Chair Jerome Powell noted the Fed isn’t "concerned" about money market strains, adding, "We knew this day would come, just sooner than expected." Yet the immediate launch of Treasury purchases—with volumes expected to "stay high" for some time—signals clear unease over tightening liquidity.

**RMP Isn’t QE, But Markets Don’t Care**

Traditional QE targets long-term Treasuries and mortgage-backed securities to suppress long-term rates and spur growth. RMP, however, is more technical—focusing on short-term T-bills to ensure sufficient financial system "plumbing" and prevent disruptions.

Despite the Fed’s insistence that RMP is merely an adjustment, markets have embraced it as a QE trade. Bank of America’s rates team aligns with consensus, forecasting substantial liquidity injections.

BofA previously projected RMP funding would combine "Natural Growth" (expanding with economic and currency demand) and "Backfill" (a six-month patch for prior liquidity drains). Unlike QE, RMP acts as banking system maintenance—yet its immediate impact is direct liquidity. The bank expects RMP cash to swiftly depress SOFR while FF lags, creating arbitrage potential.

Current pricing severely underestimates this liquidity effect. BofA sees the SOFR/FF spread narrowing rapidly from -10bps to -5bps or tighter, presenting clear front-end rate trading opportunities.

**Will 2019’s Playbook Repeat?**

For context, BofA’s Mark Cabana team highlights 2019’s RMP episode as the only true precedent.

In September 2019, SOFR spiked amid acute liquidity shortages—the infamous repo crisis. The Fed rolled out repo operations, announcing RMP on October 11 (effective October 16). Monthly RMP then averaged 0.2-0.3% of GDP, with repos totaling ~1% of GDP.

Markets reacted instantly: SOFR/FF spreads narrowed from -21bps in September to -3bps by October, stabilizing at -2bps in November. The 2019 case proved cash injections rapidly move SOFR, while FF lags.

BofA notes 2025 isn’t a carbon copy. Today’s liquidity over-tightening is less severe than 2019’s, warranting a milder Fed response. Its projected RMP (~0.15% of GDP monthly) is smaller.

Yet the mechanism holds: cash boosts SOFR faster than FF—a pattern also seen in late 2021, when QE drove SOFR toward zero quicker than FF. Regardless of labels, markets are primed for another liquidity feast.