The Federal Reserve is embarking on a period of balance sheet expansion that Lyn Alden has dubbed the "gradual print". This approach contrasts with predictions of a more aggressive, large-scale money-printing event. Alden suggests the Fed's shift is designed to inject liquidity into the financial system, addressing strains in the repo market and accommodating increasing Treasury demands.

The Fed has already announced it will expand its balance sheet to maintain sufficient reserves in the banking system and control interest rates. The plan involves allowing mortgage-backed securities to mature while purchasing Treasury securities with durations of up to 3 years. Initial purchases are set at $40 billion per month, with expectations that this level will remain through April 2026 to ease liquidity pressures ahead of the tax season. Following this period, Federal Reserve Chairman Jerome Powell anticipates a baseline structural growth rate of $20-$25 billion per month.

The "gradual print" refers to the Federal Reserve slowly expanding its balance sheet to support financial plumbing rather than launching full-scale stimulus. The mechanism involves the Fed creating new bank reserves and exchanging them with banks for treasury securities, increasing both its assets (treasuries) and liabilities (bank reserves).

This approach comes as the U.S. economy exhibits what Alden describes as "emerging market light" characteristics. Despite strong headline GDP figures, underlying economic fragility is apparent, with weak capital expenditures and softening consumer demand in many sectors. Excluding the artificial intelligence sector and the impact of fiscal spending, much of corporate America is experiencing sluggish growth. This divergence between market strength and the broader economic reality is creating political tension.

Alden's analysis highlights that the Fed's decision to halt quantitative tightening in December 2025 was influenced by liquidity stress in the repo market. This move, months ahead of schedule, signals tighter liquidity conditions than headline figures suggest.

Looking ahead, projections for the Fed's balance sheet expansion in 2026 vary. The Federal Open Market Committee (FOMC) has estimated an increase of $220 billion by December 2026. However, Alden suggests that if the Fed increases its balance sheet by $30 billion per month through April and then $20 billion per month, the expansion could reach $290 billion. Alternatively, averaging $40 billion per month until April and $25 billion thereafter would result in a $375 billion increase.

While the "gradual print" is not intended as a large stimulus, it injects liquidity to address financial plumbing issues and maintain control of interest rates. This approach aims to provide ongoing support for Treasury and repo market operations.