Emre Yumlu 
Deutsche Bank now anticipates that the United States Federal Reserve (FED) will begin expanding its balance sheet in the first quarter of 2026. According to the bank, a noticeable slowdown in economic activity combined with increasing concerns over tightening liquidity conditions may push the Fed toward a more accommodative policy stance. Market participants interpret this potential shift as an early indication that quantitative easing could return to the policy agenda.
A High Probability of Balance Sheet Expansion
A report shared via economic news outlet Walter Bloomberg states that Deutsche Bank sees a “high likelihood” that the Fed will resume balance sheet growth during the opening months of next year. The analysis points out that weakening growth indicators and more restrictive financial conditions will likely shape the backdrop for a pivot toward easing. These factors, the report suggests, may prompt policymakers to prioritize liquidity support in order to stabilize economic momentum.
What Does Balance Sheet Expansion Mean?
When the Federal Reserve enlarges its balance sheet, it typically does so by purchasing U.S. government bonds or other securities, injecting additional liquidity into the financial system. This mechanism is widely recognized as a form of quantitative easing (QE). In financial markets, balance sheet expansion is often seen as a signal that risk appetite may strengthen. As liquidity increases, demand for a wide range of assets—potentially including cryptocurrencies—can rise, creating upward pressure on prices.
QE vs. QT: The Fed’s Most Influential Policy Tools
QE (Quantitative Easing) and QT (Quantitative Tightening) represent two central levers used by the Federal Reserve to influence economic conditions. During QE cycles, the Fed purchases large amounts of assets such as Treasury bonds and mortgage-backed securities, adding substantial amounts of dollar liquidity into the system. This approach is designed to lower long-term interest rates, support economic expansion, and prevent deflationary pressures. Major examples include the post-2008 financial crisis period and the large-scale asset purchases during the 2020 pandemic, both of which eventually paved the way for strong bull markets.
By contrast, QT works in the opposite direction. The Fed reduces its holdings by letting securities mature without reinvesting the proceeds or by actively selling assets, effectively shrinking its balance sheet. This policy aims to curb inflation and decrease the money supply by tightening financial conditions. From 2022 through October 2025, QT was the Fed’s primary stance, contributing to a notable reduction in market liquidity.
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