Federal Reserve's sudden change! Treasury Secretary urgently extinguishes fire, a trillion-dollar asset reshuffle is coming!
Wall Street is in turmoil! The Federal Reserve's policy expectations have suddenly turned, and U.S. Treasury Secretary Bessent swiftly steps in to calm the market, officially kicking off a global trillion-dollar asset reshuffle.
Market panic is directly aimed at Trump's nominee for Federal Reserve Chair, Waller. This hawkish official has long criticized quantitative easing and advocates for reshaping the relationship between the Federal Reserve and the Treasury. Once the aggressive reduction in the balance sheet touches an asset portfolio exceeding $6 trillion, the $30 trillion U.S. Treasury market may face severe turmoil, and the independence of the Federal Reserve will also be subjected to serious scrutiny.
At this critical moment, Bessent made a significant statement to "extinguish the fire": even if Waller takes the helm of the Federal Reserve, there will never be a rapid reduction in the balance sheet; adjusting the balance sheet will require a year of assessment. Under the "ample reserves" system, the Federal Reserve has no motivation for an aggressive reduction in the balance sheet to stabilize the interest rate system.
Goldman Sachs and other institutions directly stated that the market has seriously misread Waller's position. He opposes long-term QE, but will not push for large-scale balance sheet reduction. In the next 5-7 years, the Federal Reserve's assets will undergo a structural shift: holdings will shift significantly from medium- and long-term securities to short-term Treasury bills within 12 months, with the proportion of Treasury bills possibly soaring from less than 5% to 55%. The Federal Reserve will continue to participate in market debt purchases.
Trump's demand to lower mortgage rates further locks in aggressive balance sheet reduction space. Reducing the balance sheet will raise interest rates, contrary to government objectives; Bessent may have a "soft veto" over tightening plans.
The $30 trillion U.S. Treasury market cannot afford a fundamental structural change; slight adjustments are bearable, but drastic changes will inevitably trigger global financial turmoil. The Federal Reserve's major shift in assets has become a foregone conclusion. How will this impact the cryptocurrency space and global assets? Share your thoughts in the comments!
