Recently, a move by the Federal Reserve has caught market attention — spending $40 billion per month to buy short-term government bonds. It sounds very official and technical, but the underlying logic is actually crucial for traders.

First, understand what the Federal Reserve is doing. Officially called RMP (Reserve Management Purchases), it involves allocating $40 billion each month to buy short-term government bonds with maturities of less than one year in the open market. The result of this is — the Fed’s balance sheet expands, and the money in the market suddenly increases.

But there’s an interesting point here. The Fed itself says this is not quantitative easing (QE), but rather "liquidity management" and "repo operations." Their reasoning is: traditional QE involves buying long-term bonds to lower long-term interest rates and encourage companies and individuals to borrow and spend — which is true economic stimulus. RMP, on the other hand, buys short-term bonds mainly to replenish banks’ reserves and ensure the stability of the financial system. The Fed’s analogy is "fixing the water pipes" rather than "opening the floodgates."

It sounds reasonable, but most market participants are not convinced. Investors generally interpret this as "hidden QE," and the reasons are actually quite simple:

A $40 billion/month purchase operation essentially expands the Fed’s balance sheet. The actual effect of injecting liquidity into the market is no different from traditional QE. Moreover, the Fed has also stated that there is no overall cap on the scale, maintaining policy flexibility — meaning if needed, the scale can continue to grow.

When liquidity increases, the most direct consequence is asset prices rise. Short-term interest rates are pushed down, and idle funds naturally flow into risk assets seeking returns. When signs of economic slowdown appear, this operation often signals that larger-scale easing policies are imminent. From another perspective, it also means the tightening cycle has officially ended, and the liquidity cycle is returning.

For traders and investors, this signal is very clear: the opportunity cost of holding cash is rising, and holding assets becomes more attractive.