The Fed's most aggressive move this year has arrived - stopping the balance sheet reduction, effective immediately.

This sounds very official, but what does it actually mean?

In other words, you will understand: the Fed will no longer continue to withdraw money from the market. Money will no longer become tighter.

From 2022 until now, the Fed has cut its balance sheet from 9 trillion to 6.6 trillion. Global liquidity? It's been strangled by it.

Suddenly hitting the brakes now is not out of goodwill, but because——I really can't take it anymore.

Why can't we hold on? The reason is very straightforward:

Economic growth is declining, and credit is tightening. If we continue to siphon off, the market may suffocate directly.

What's worse is that bank reserves have already dropped to a dangerous level, and the money market is about to flash a red light. If the Fed continues to hold on, it will be like putting a noose around its own neck.

But the most critical issue is actually hidden beneath the surface —

The fiscal deficit of the United States.

During the pandemic years, the Fed bought U.S. Treasuries, essentially providing a lifeline to the government. If the balance sheet continues to shrink, the cost of borrowing for the government will skyrocket.

The U.S. finances are already a mess; how could the Fed dare to act recklessly?

So this time the tapering is not a "prudent adjustment", but an emergency brake that had to be pressed.

So what does this mean for the market?

In the short term, it's a positive.

Liquidity pressure has eased a bit, and what should rise may rise.

But don't celebrate too early—

The Fed's asset size is more than 2 trillion larger than before the pandemic, and on this basis, "loosening up" is often the opening signal for a new round of volatility.

The more outrageous things are yet to come:

Due to the U.S. government shutdown, the economic data for October will be released in December.

It is now typical – data is lacking, policies are ahead, and the market is completely flying on imagination.

This also explains why the US stock market has been as volatile as a roller coaster recently.

In summary:

The Fed's move is telling the whole world that liquidity has reached its limit and can no longer be tightened.

And this usually means:

The next round of interest rate cuts is already in the works.

How will the market move?

Just a reminder:

Such macro turning points usually react in advance, rather than waiting for the news to land before moving.

Are you ready? We'll see the results in the next month or two.