💥 Breaking news just in — the Fed has announced that it will officially stop the balance sheet reduction operations starting from December 1!

What does this mean? Simply put, it means that the Fed is no longer "draining" the market. Since starting the balance sheet reduction in June 2022, the Fed has cut its balance sheet from nearly $9 trillion to about $6.6 trillion. Now, suddenly hitting the brakes, what exactly has happened behind the scenes?

🤔 Why now of all times?

First, the economic growth rate has obviously slowed down. If tightening continues, market liquidity may not be able to cope. Secondly, the reserve levels in the banking system are declining, and the money market has already begun to sound alarms—if adjustments are not made soon, problems may indeed arise.

But the deeper reason is actually closely related to the U.S. fiscal deficit. During the pandemic, the Fed bought a large amount of government bonds, essentially providing a safety net for government finances, covering a scale that probably accounts for more than half of the deficit. If the sale of U.S. Treasuries continues and the balance sheet shrinks, the government’s financing costs are bound to skyrocket... The Fed clearly does not want to bear this burden.

⚖️ How awkward is the Fed's current situation?

On one side, inflation is still hovering around 3%, while on the other side, the job market has begun to cool down. "Stabilizing growth" and "controlling inflation" are like a seesaw, and finding a balance point is becoming increasingly difficult.

💰 What does this mean for the market?

In the short term, the situation of global liquidity tightening may ease, which is certainly good news.

But don't celebrate too early - the Fed's asset size is still $2 trillion more than before the pandemic, and there is still a lot of money in the market. Will this money push asset prices up again? Will volatility therefore increase? All are unknowns.

There is also a tricky issue: due to the government shutdown, key economic data for the U.S. in October will be delayed until December for release. The "data blackout period" coincides with the "policy shift period," causing market expectations to be completely thrown into disarray... This may also be one of the important reasons for the recent sharp fluctuations in the U.S. stock market.

✨ How to understand this shift?

The Fed's decision to pause balance sheet reduction this time is both a preventive measure for the economy and may also indicate that liquidity is nearing a phase bottom area. The interest rate cut cycle from 2025 to 2026 might be closer than everyone thinks.

For the crypto market, an improvement in the liquidity environment is usually a positive signal. How will mainstream coins like ETH, DOGE, and ZEC move next? Market, are you ready to embrace the changes?