Federal Reserve Halts Bond Selling While Bank of England Faces Scrutiny Over Quantitative Tightening Programme

The US Federal Reserve has announced an immediate halt to its bond selling programme, as the Bank of England faces mounting calls to reassess its own policy on quantitative tightening. On 29 October, the Federal Open Market Committee (FOMC) confirmed it will cease its balance sheet run off—known as quantitative tightening—starting 1 December. This development coincides with the Fed’s second interest rate reduction of the year, lowering its Federal Funds Rate from 4.25 percent to 4 percent amid signs of a weakening US labour market.

Uncertainties surrounding the economic outlook remain markedly elevated. The FOMC’s statement highlighted rising downside risks to employment, prompting renewed attention on central bank actions globally. With the Fed pausing bond sales, attention now turns to the Bank of England and its ongoing efforts to unwind previous quantitative easing measures. Market observers suggest the British central bank may soon face increased scrutiny over its current approach.

Calls for the Bank of England to halt active gilt sales are intensifying, led by Reform UK’s Nigel Farage and deputy Richard Tice. They argue that sustained bond sell offs are artificially elevating government borrowing costs, pressuring the public finances and putting additional strain on the markets.

The practice of buying government bonds during the pandemic flooded the financial system with liquidity, cushioning economic shocks. Since 2022, both the Federal Reserve and the Bank of England have embarked on reducing their vast holdings, a shift back towards tighter policy. The Fed’s balance sheet has contracted from a peak near $9 trillion to $6.6 trillion, signalling a significant withdrawal of excess liquidity. The Bank of England has also slowed its pace of bond sales, having set out a revised roadmap in September.

Analysts, including Aberdeen’s investment director Matt Amis, argue that the Fed’s move may provide cover for the Bank of England to pause its active gilt sales from 2026. By then, further reduction in its holdings will likely have been achieved, legitimising a shift in policy without undue market surprise.

The Fed’s decision was partly prompted by rising funding costs and signs of tighter liquidity in short term markets. An increase in the Overnight Financing Rate (SOFR) and the Federal Funds Rate indicated a scarcity of cash reserves, raising concerns about banks’ ability to lend and broader economic repercussions. Added to this, chair Jerome Powell signalled that additional rate cuts in December are not guaranteed, advising caution over expectations for further monetary easing.

The US central bank is closely monitoring heightened defaults in subprime credit markets, particularly after the collapse of subprime auto lender Tricolor. Powell emphasised vigilance but stated that risks do not yet extend to the broader banking sector. Markets remain watchful as policymakers navigate a delicate balance between supporting growth and avoiding systemic financial instability.