American Express and the Liquidity Crossroads: Strategic Entry Points Amid Macroeconomic Shifts

The Federal Reserve's quantitative tightening (QT) program, which has reduced its balance sheet by $1.3 trillion since June 2022, is reshaping the liquidity landscape for financial markets. As of December 2023, the Fed's total assets stood at $7.7 trillion, with the reverse repo facility—a critical tool for managing short-term liquidity—declining from $2.6 trillion to $1.2 trillion The shifting liquidity landscape: What's at stake?^[1]. Analysts at Wellington Management note that this trajectory suggests the reverse repo facility could deplete entirely by early 2025, potentially forcing the Fed to reconsider its QT strategy amid rising money market rates The shifting liquidity landscape: What's at stake?^[1]. While American Express (AXP) has not issued public statements about trading halts or liquidity constraints, the broader macroeconomic environment raises questions about how tightening liquidity might affect high-yield credit card issuers like Amex.

The Macroeconomic Tightrope

The Fed's goal of reducing its balance sheet to 18% of GDP and cutting excess bank reserves to 10% of GDP faces headwinds from persistent fiscal deficits and regional banking fragility The shifting liquidity landscape: What's at stake?^[1]. If QT persists beyond mid-2025, borrowing costs for corporations and consumers could rise, pressuring credit card delinquency rates. For Amex, which derives 65% of its revenue from credit card services, this could translate to tighter underwriting standards or reduced spending volumes. However, Amex's robust financial position—$6.2 billion in trailing net income and a 14.3% ROE as of Q2 2025—suggests it is better positioned than many peers to weather such shifts .

Strategic Entry Points for Long-Term Investors

Despite the absence of direct evidence for Amex-specific liquidity issues, the broader QT-driven environment creates asymmetric opportunities. If the Fed pauses or ends QT in response to economic slowdowns, liquidity injections could drive down interest rates and boost consumer spending, directly benefiting Amex's high-margin credit card business. Historical precedent from the 2018-2019 liquidity crunch shows that financial stocks with strong balance sheets often outperform during Fed easing cycles.

For long-term investors, the current valuation of Amex—trading at 16.5x forward earnings as of September 2025—presents a compelling entry point. This is below its five-year average P/E of 20.3x, even as the company maintains a 98% loan repayment rate and a 4.5% net charge-off ratio . A potential near-term catalyst could be the Fed's response to a flattening yield curve, which has historically signaled policy pivots.

Risks and Mitigants

Critics argue that Amex's reliance on premium credit cardholders (average FICO score of 780) exposes it to wealth concentration risks. However, the company's diversified revenue streams—including 15% from small business services and 12% from travel partnerships—provide a buffer. Additionally, Amex's recent investment in AI-driven fraud detection and personalized spending analytics could enhance customer retention during economic volatility.

Conclusion

While no official reports link American Express to trading halts or liquidity constraints The shifting liquidity landscape: What's at stake?^[1]2025 Midyear Investment Outlook | BII - BlackRock^[2], the Fed's QT program creates a macroeconomic crossroads. For investors, the key lies in balancing near-term liquidity risks with Amex's long-term structural advantages. A strategic entry point emerges if the Fed's policy pivot aligns with improved economic data, potentially unlocking value in a stock that combines defensive balance sheet strength with offensive growth levers.