Federal Reserve Chair Jerome Powell announced on Tuesday that the central bank's three-year quantitative tightening (QT) campaign, which has reduced its balance sheet from a peak of nearly $9 trillion to about $6.6 trillion, could conclude within months. Powell, speaking at the National Association for Business Economics conference, emphasized that downside risks to employment have risen, making another quarter-point interest rate cut at the October 28-29 meeting highly probable, with CME futures markets pricing a 95.7% likelihood.
Powell issued a stark warning against Congressional efforts, led by Senator Ted Cruz, to eliminate the Fed's ability to pay interest on bank reserves—a tool critical since 2008 for rate control. He stated that revoking this authority would force the Fed into "large sales of Treasury or mortgage securities over short periods, straining market functioning and risking financial turmoil." The Fed is currently operating at a loss due to rapid rate hikes but expects to return to profitability soon.
The crypto community interpreted Powell's comments as a bullish catalyst. Arthur Hayes tweeted, "QT is over. Back up the f**king truck and buy everything," while Joe Consorti highlighted that Bitcoin surged from $18,000 to $126,000 during the QT period. J.P. Morgan economists, including Michael Feroli, reinforced expectations of additional rate cuts, with a 94.8% probability of a December cut suggesting a total 0.5% reduction by year-end. However, crypto markets remain jittery after recent liquidations, with Bitcoin trading at $115,321 and facing resistance at $119,018; analysts warn a failure to breach this level could trigger a correction toward $96,526.
Gold has rallied to a record $4,200, up 59% year-to-date, driven by rate cut expectations and geopolitical uncertainties. Powell noted that the government shutdown since October 1 has limited access to economic data, complicating assessments, but pre-shutdown indicators suggested a firmer economic trajectory.
