The Fed's Balance Sheet Stopped Draining Dollars in December. The Rupiah Hit a Record Low Anyway
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7 min read
Most people watching the US Federal Reserve watch one number: the interest rate. But the Fed has a second lever, and between June 2022 and December 2025 it used that lever to pull roughly US$2.4 trillion out of the global financial system. That lever is the Fed's balance sheet, and the process of shrinking it is called quantitative tightening.
Here is the part that should make you cautious about the simple story. The Fed stopped draining on 1 December 2025. Its balance sheet has been growing again ever since. And the rupiah went on to hit the weakest level in its history in June 2026, six months after the draining stopped.
This post explains what the Fed's balance sheet actually is, what happened when it stopped shrinking, and what that episode teaches about how much of the rupiah's fate is really decided in Washington.
When the Fed sets its policy rate, it is setting the price of borrowing dollars overnight. That is one lever.
The balance sheet is a different one. It is simply a list of what the Fed owns, mostly US government bonds (Treasury securities) and mortgage-backed securities (bonds made up of bundled home loans). When the Fed buys those bonds, it pays for them with newly created dollars, and those dollars land in the banking system as reserves. Reserves are the cash banks hold at the central bank. More reserves means more dollars sloshing around looking for somewhere to go, and some of that money reliably goes looking for higher returns in places like Indonesia.
When the Fed lets bonds it owns mature without buying replacements, the reverse happens. The money that repaid those bonds disappears rather than being recycled. Dollars leave the system. That is quantitative tightening, or QT.
The Fed's balance sheet peaked at roughly US$8.96 trillion in April 2022, bloated by the emergency bond buying that followed the pandemic. In June 2022 the Fed began letting those holdings run off.
It kept going for three and a half years. By the time the programme ended, total assets were down to about US$6.55 trillion, a reduction of roughly US$2.4 trillion, or about a quarter of the whole balance sheet.
Then it stopped. On 29 October 2025 the Fed's rate-setting committee announced it would cease the runoff starting 1 December 2025, and instructed its trading desk to reinvest maturing bonds rather than let them roll off.
| Date | What happened |
|---|---|
| April 2022 | Balance sheet peaks at about US$8.96 trillion |
| June 2022 | Quantitative tightening begins |
| 29 October 2025 | Fed announces runoff will stop on 1 December |
| 1 December 2025 | Runoff ends, at about US$6.55 trillion |
| 10 December 2025 | Fed judges reserves "ample" and starts buying Treasury bills again |
| 5 August 2026 | Balance sheet at about US$6.7 trillion, higher than a year earlier |
Ending the drain was one decision. What came ten days later was a bigger one.
On 10 December 2025, the Fed's committee judged that bank reserves had fallen to merely "ample" levels, and directed its trading desk to start buying Treasury bills again to keep reserves from getting scarce. These are called reserve management purchases. The New York Fed's first schedule, published the following day, covered roughly US$40 billion in Treasury bills, with purchases starting 12 December 2025.
This is not a return to the emergency money printing of 2020. The Fed's stated purpose is narrow: buy just enough to keep pace with growth in demand for dollars, so reserves do not accidentally run dry. But the direction of travel flipped all the same. As of the Fed's weekly balance sheet release for 5 August 2026, total assets stood at about US$6.7 trillion, roughly US$108 billion higher than a year earlier.
For three and a half years the Fed removed dollars from the world. Since December 2025 it has been adding them back.
If dollar liquidity were the thing that decides where emerging market currencies go, the rupiah should have had a good 2026. Instead it had one of its worst years on record.
On 4 June 2026 the rupiah broke through 18,000 per US dollar for the first time ever, reaching about 18,028, according to AFP reporting at the time. It was Asia's worst-performing currency that year, down more than 7% in the first five months alone. That record was set six months after the Fed stopped draining dollars.
Bank Indonesia responded with the tools it actually controls. It raised the BI Rate twice in June: an unscheduled hike to 5.50% on 9 June, then another to 5.75% on 18 June, capping 100 basis points of increases since the start of 2026. It held at 5.75% again on 19 August 2026. By 18 August the rupiah had recovered to about Rp17,855 per dollar, 0.78% stronger than at the end of July, according to Bank Indonesia's own account, but still far weaker than where it began the year.
The pressure came from causes that had nothing to do with the Fed's bond portfolio:
There is genuine evidence the background did improve. Bank Indonesia reported net foreign portfolio inflows of US$1.8 billion in the third quarter of 2026 through 14 August, and foreign exchange reserves finished July at US$145.3 billion, still covering 5.5 months of imports, comfortably above the three months international standards treat as adequate. Support returned. It just did not arrive in time to stop a record low, and it was not large enough to reverse the year.
Treat it as a slow-moving background gauge, not a trading signal. Three things are worth knowing:
If you hold US-listed assets, Indonesian assets, or both, the practical version is this: watch the things that actually move your portfolio's currency exposure. NetWort's Macro Context page tracks the Fed rate, the BI Rate, USD/IDR, Indonesian inflation and the dollar index side by side, so you can see which of these are moving together and which are pulling apart, rather than assuming one headline from Washington explains the whole picture.