After 75 years, the Federal Reserve teams up with the Treasury Secretary! Waller's new policy shakes the $30 trillion U.S. Treasury market, while the crypto market faces a life-and-death situation.
After 75 years, is the Federal Reserve going to rewrite financial rules? Waller, nominated by Trump as the Fed Chairman, is pushing for a new version of the 1951 agreement with the Treasury Department, which directly targets the $30 trillion U.S. Treasury market, changing the global liquidity landscape, and the crypto market is facing another major shock!
On February 9, Bloomberg reported that Waller advocates for a deep binding of the Fed's balance sheet size to the Treasury's bond issuance plan. Treasury Secretary Yellen also stands on the same side, opposing long-term quantitative easing and demanding that QE only be implemented after government coordination in emergency situations. This idea mimics the classic agreement that established central bank independence in 1951 but has been criticized for weakening the Fed's autonomy, raising concerns that the Treasury will gain a “soft veto” on quantitative tightening.
The market generally expects that the agreement may drive a major adjustment in the Fed's asset structure, shifting from medium to long-term bonds to short-term Treasury bills within 12 months. Deutsche Bank even predicts that in the next 5-7 years, the Fed's holding of Treasury bills will surge from 5% to 55%, and the U.S. Treasury has also begun to adjust its bond issuance plan. Currently, the U.S. government's annual debt interest reaches $1 trillion, and while this move aims to lower borrowing costs, it has been warned that it may become a tool for controlling the yield curve, directly tying monetary operations to the fiscal deficit, raising inflation expectations, and weakening the safe-haven attributes of the dollar and U.S. Treasuries.
Waller's hawkish policies have previously led to a decline in Bitcoin of over 10%. This huge tremor in the U.S. Treasury market will further affect global liquidity, and the pricing logic of crypto assets may be reshaped. Although some experts believe that the probability of a formal agreement being reached is low, Waller will still insist on central bank independence. However, this deep game between the Fed and the Treasury has already made the volatility of the $30 trillion U.S. Treasury market reach its peak.
Is the binding of the Fed and the Treasury the antidote to save U.S. Treasuries or a poison for global finance? Will the loss of central bank independence trigger a collapse of the dollar's credit? Can Bitcoin and other crypto assets take the opportunity to establish a new safe-haven track?
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