Dear Investors and Friends,
For most of the past two years, the Federal Reserve has been shrinking its balance sheet through quantitative tightening, allowing bonds to mature without reinvestment and steadily removing liquidity from the financial system.
Now, that chapter appears to be ending. Chair Powell recently said the end of quantitative tightening ‘may be coming into view,’ and New York Fed President John Williams suggested the Fed may soon need to buy bonds again to maintain smooth control over short-term interest rates. While these purchases would initially be framed as technical liquidity management rather than full-scale stimulus, the direction is clear: the Fed is preparing to stop shrinking its balance sheet and may even begin expanding it again.
That is significant because balance sheet expansion, known as quantitative easing, has historically been a tool used in times of economic weakness, not strength.
Why This Shift Matters
Quantitative easing has usually been deployed when the economy is struggling. It was central to the policy response during the 2008 financial crisis, the 2020 pandemic, and earlier recessions. The goal in each case was to inject liquidity, lower borrowing costs, and stabilize fragile markets.
Today, however, the economy looks anything but fragile. Growth remains solid, unemployment is near historic lows, corporate profits are strong, and consumer spending is resilient. If quantitative easing, or even the hint of it, returns in this kind of environment, the implications are very different.
To stimulate when growth is already firm is, by definition, to risk fueling new inflationary pressures. Liquidity entering a strong economy does not just stabilize markets; it can also overheat them.
The Strength of Today’s Economy
It is worth pausing to note just how robust the U.S. economy remains by historical standards:
In short, this is not the sort of backdrop that typically calls for additional liquidity. Which is why this potential shift from tightening to easing is so noteworthy.
As the chart below shows, the Fed’s total assets reached a record high during the pandemic as quantitative easing flooded markets with liquidity. Since 2022, the balance sheet has been steadily shrinking under quantitative tightening. As of late 2025, that decline appears to be flattening, a signal that the era of liquidity withdrawal may be ending.
This subtle turn in liquidity policy has not gone unnoticed. Investors such as Ray Dalio have already begun highlighting its potential long-term consequences.
What Ray Dalio Is Watching
Ray Dalio, founder of Bridgewater Associates and one of the most insightful observers of global monetary cycles, recently summarized the paradox well:
“All the previous times that quantitative easing was used, the economy was weak, asset valuations were falling, inflation was low or falling, and credit spreads were wide. The current environment is nearly the opposite.”
In other words, the Fed may soon be adding liquidity to an economy that does not appear to need it. That could prolong asset strength in the short run, but it may also set the stage for renewed inflation or future market distortions.
Dalio’s broader framework remains a useful compass: watch what central banks do with money and credit, because that is where every cycle begins and ends.
Implications for Investors
For investors, this policy inflection brings both opportunities and risks:
The Broader Lesson
When the Fed provides stimulus into strength, the effects can be both comforting and destabilizing. Asset prices may rise, volatility may fall, and optimism may return, but so can inflation.
The end of quantitative tightening is not, by itself, a reason to change course dramatically. But it marks an important turning point in monetary policy, one that could influence yields, spreads, and valuations well into 2026.
At Roosevelt Capital Management, our approach remains the same: disciplined, data-driven, risk-aware and opportunistic. We continue to emphasize short to moderate duration, careful credit selection, and diversification across the yield curve to capture the best relative value without speculating on rate direction.
As always, we will watch the data, not the headlines, and remain guided by the same principles that have served our clients well through every cycle: steady stewardship, sound measurement, and an insistence on real value.
With gratitude,
David and Mike
Disclaimer
Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.
While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.