Fed halts bond sales as Bank of England faces pressure to do the same

The move could increase the likelihood that the UK halts its own selling programme in 2026

By Melissa Lawford US Economics Correspondent

Related Topics

• Bank of England, 
• US Federal Reserve, 
• Bonds

29 October 2025 8:44pm GMT

The Federal Reserve said it will halt its bond-selling programme amid pressure on the Bank of England to follow suit.

The US central bank also made its second interest rate cut this year, bringing its Federal Funds Rate down from 4.25pc to 4pc as it warned over America’s weakening jobs market.

On Wednesday, the Federal Open Market Committee (FOMC) said it would stop its balance sheet run-off, a process known as quantitative tightening, on Dec 1.

The FOMC said: “Uncertainty about the economic outlook remains elevated. The committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.”

Central banks follow one another’s actions closely, and the Fed’s move will mean greater scrutiny over the Bank of England’s own approach to quantitative tightening.

Nigel Farage, the Reform UK leader, and Richard Tice, his deputy, have been urging Andrew Bailey, the Bank of England Governor, to halt the bank’s active selling of the UK bonds it bought during its own period of quantitative easing.

Mr. Tice argues that the bond sales are putting unnecessary pressure on government borrowing costs.

During the pandemic, central banks bought vast amounts of bonds and securities to inject cash into the system and support financial markets, in a process known as quantitative easing.

Since 2022, when the Fed’s balance sheet totalled nearly $9tn (£6.8tn), the Fed has been allowing these purchases to run off its balance sheet, a process that reduces the amount of cash in the financial system. Today, its asset portfolio totals $6.6tn.

The Bank of England, which also began quantitative tightening in early 2022, laid out a roadmap in September to slow its bond sales programme.

Matt Amis, the investment director at Aberdeen, said that the Bank would be unlikely to make changes to its plans so soon after its September announcement, but that the Fed’s decision could increase the likelihood that the Bank stops its bond sale programme in 2026.

Mr Amis said: “By next year, the holding of gilts will have reduced further, and with the Fed stopping, that will allow the Bank of England to cover to stop the active portion of QT without too many questions or eyebrows being raised.”

‘Significant problems’

The Fed’s decision came after rising funding costs in short-term money markets triggered warnings that bank reserves may be becoming too scarce.

The Overnight Financing Rate, known as SOFR, rose above the Fed’s target rate one week earlier this month, while the Federal Funds Rate has climbed from 4.08pc just after its September meeting to 4.12pc.

Gennadiy Goldberg, head of US rates strategy at TD Securities, said: “That is an indication that cash is becoming a little bit more difficult to obtain. Left untreated, it could lead to significant problems in the financial system.”

The Fed’s reserves are used for bank lending. If reserves are too scarce, it artificially raises banks’ funding costs. In turn, banks may pull back on lending, which hurts the broader economy, Mr Goldberg said.

There were two dissenting votes on the FOMC, as governor Stephen Miran, whom Donald Trump appointed to the board in September, voted for a 0.5 percentage point cut. Jeffrey Schmid voted to keep interest rates on hold.

US stocks fell marginally after Fed chairman Jerome Powell poured cold water on widespread expectations for another interest rate cut in December. “It’s not to be seen as a foregone conclusion. In fact, far from it,” he said.

Meanwhile, Mr Powell said the Fed was monitoring subprime credit losses “very carefully” as warnings mount over America’s private credit sector following the collapse of subprime auto lender Tricolor.

“We watch these things very carefully, we watch credit conditions very carefully,” he said.

“You’ve seen rising defaults in subprime credit for some time now, and now you’ve seen a number of subprime credit automobile credit institutions having significant losses, and some of the losses are now showing up on those banks.

“We’re looking at it carefully. We’re paying close attention. We don’t see at this point a broader credit issue. It doesn’t seem to be something that has very broad application across financial institutions. But, you know, we’re going to be monitoring this quite carefully.”

View this Telegraph (UK) article CLICK HERE