Important! Bessent's Specific Guidance: The Fed is not in a hurry to reduce its balance sheet, and the adjustment of the balance sheet is progressing steadily.
Global markets welcome a key policy signal! U.S. Treasury Secretary Bessent has made significant comments, directly setting the tone for the Fed's balance sheet adjustments: Even with the hawkish chair nominee Walsh taking office, the Fed will never rush to reduce the balance sheet. The overall adjustment will proceed steadily and orderly, significantly alleviating the market's tense liquidity anxiety.
Bessent publicly stated that it may take up to a year for the Fed to finalize its plan, and the balance sheet adjustment will be decided autonomously by the central bank. Under the "ample reserves mechanism," the Fed needs to maintain a sizable balance sheet and cannot hastily shrink it aggressively. He emphasized that although Walsh has long criticized the Fed for expanding its balance sheet and advocated for significant cuts to the asset size, he will uphold the independence of the central bank and will not blindly implement aggressive policies.
Data shows that the Fed's balance sheet reached a peak of $9 trillion in 2022, and after years of quantitative tightening, it is expected to drop to $6.6 trillion by the end of 2025. In December 2024, the Fed will restart technical purchases of short-term Treasury bills to replenish liquidity in the financial system and stabilize the interest rate range. Additionally, the Trump administration hopes to lower mortgage rates, and a hasty balance sheet reduction would raise long-term rates, contradicting policy objectives and making it difficult to achieve while maintaining financial stability.
This statement clarifies the Fed's core path of "stabilizing liquidity and slowing balance sheet reduction." Short-term global liquidity shocks are controllable, benefiting U.S. stocks, U.S. bonds, and the cryptocurrency market, avoiding sharp market fluctuations caused by abrupt policy shifts.
The pace of the Fed's balance sheet reduction directly affects global liquidity and the trends in the cryptocurrency market. Do you think the Fed will continue a moderate pace in 2026, or will it turn to tightening? What impact will this have on cryptocurrency assets? Feel free to share your views in the comments!
