Alarm lifted! The Federal Reserve's senior officials collectively extinguish the fire, the balance sheet reduction slows down completely, and risk assets welcome good news
The alarm for balance sheet reduction has suddenly been lifted! Senior officials of the Federal Reserve rarely speak in unison to "extinguish the fire," and the global market's anxieties have finally eased. Facing the hawkish new chairman Waller, Washington's authoritative tone is clear: balance sheet reduction cannot speed up this time!
U.S. Treasury Secretary Yellen made a significant statement, clearly stating that even with Waller's appointment, the Federal Reserve will not rapidly reduce its balance sheet, and the observation period for policies may last up to a year. Liquidity has become tighter, internal consensus does not support it, and coordination with the Treasury Department is challenging, creating a triple lock that restricts aggressive balance sheet reduction. A crisis similar to the money shortage of 2019 is unlikely to reoccur.
Waller is caught in a dilemma between ideology and reality, as hawkish views struggle against the White House's calls for interest rate cuts and a weak job market, ultimately leading to a compromise route of "interest rate cuts + gradual balance sheet reduction." Institutions predict that the Federal Reserve will cut interest rates twice in 2026, with AI deflation logic further supporting easing, making it more favorable for stocks, cryptocurrencies, and other risk assets.
Short-term panic has subsided, but long-term hidden worries remain. Passive balance sheet reduction will slowly consume market liquidity, much like boiling a frog slowly, gradually tightening the financial environment, and financing volatility and liquidity management pressures will persist in the long term.
The Federal Reserve's policy shift is becoming clear, the easing window has opened, do you think this wave of policy warmth will trigger a new round of market activity in the cryptocurrency sector?
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