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Central bank watcher: Balance sheet blues

Global central banks are marching to slightly different beats as they navigate the balance sheet blues.

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Summary

  1. The Fed is rushing to stop QT
  2. The ECB maintains its worn, but worthy, catch phrase
  3. The BoJ is still waiting for wages

The Fed’s balance sheet rundown has been creating some blues in the US. Money market conditions have been tightening, resulting in the Fed’s decision to end its quantitative tightening (QT) program as per 1 December. From early 2026, we expect the Fed to start reserve management purchases (RMP) as well as grow its balance sheet again in line with nominal GDP. This should alleviate some pressure on front-end rates, which we expect to fall further in the coming months and quarters, even in the event of a December rate pause.

Meanwhile, the ECB’s balance sheet reduction has been running smoothly. In a recent speech, Governing Council member Isabel Schnabel laid out her plans for future balance sheet adjustments. She sees the reduction of bond holdings as a process of Quantitative Normalization (so QN, not QT). Schnabel has no intention of stopping the process, and her view most likely reflects those of a broader coalition of Council members.

In contrast, the People’s Bank of China prefers to give its balance sheet a boost. In October, the PBoC announced the resumption of Chinese government bond (CGB) purchases to cap bond yields and stimulate the economy.

Perhaps the purest balance sheet blues is being felt in Japan. The balance sheet of the BoJ has been declining for over a year and is scheduled to do so at an ever-faster rate over the next two years. The combination of rate hikes and a smaller BoJ influence on Japanese government bonds (JGBs) has pushed rates higher. We will monitor this closely as the new Takaichi government has expressed a preference for looser monetary and fiscal policies.

Figure 1 – Outlook for central banks’ policy rates

Source: Bloomberg, Robeco, based on money market futures and forwards, 14 November 2025.

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