New York Fed President Williams stated that the Federal Reserve may soon need to expand its balance sheet through asset purchases to meet banking system liquidity demands.
On November 7, during his prepared remarks at the 2025 ECB Money Market Conference in Frankfurt, Germany, Williams indicated that when bank reserve levels decline from their current "somewhat above ample" status to "ample" levels, the Fed would begin a "gradual asset purchase" process.
The Federal Reserve announced last week it would effectively end its three-year balance sheet reduction program starting December 1. Some analysts anticipate the Fed might begin expanding its holdings through asset purchases as early as Q1 next year. Williams emphasized that bond purchases for maintaining proper liquidity constitute neither economic stimulus nor a shift in monetary policy stance, but rather a natural continuation of the ample reserves strategy.
The Fed's balance sheet normalization program, which began in 2022 to unwind pandemic-era asset purchases, officially concluded last week. During the 2020 pandemic, the Fed had expanded its total assets from under $5 trillion to a peak of about $9 trillion through Treasury and mortgage-backed security purchases to support the economy.
Since 2022, the Fed had allowed securities to mature without replacement, aiming to maintain sufficient liquidity while permitting normal money market fluctuations. Recent increases in money market rates and active use of Fed liquidity facilities signaled that balance sheet reduction had progressed sufficiently, prompting the decision to stabilize holdings at the current $6.6 trillion level.
Williams noted the Fed is closely monitoring various market indicators related to federal funds, repo markets, and payments to assess reserve demand. He acknowledged the challenge in determining when reserve levels would require system injections.
"Given persistent repo market pressures and other signs of reserves declining from 'abundant' to 'ample,' I expect we're not far from reaching ample reserve levels," Williams stated. He confirmed the Fed's interest rate control tools, including reverse repos and the Standing Repo Facility, are functioning well, with the latter expected to remain actively used by eligible institutions.