It’s ‘Over’—Wall Street Is Quietly Gearing Up For A $6.6 Trillion Fed Flip As The Bitcoin Price Suddenly Soars

The Fed’s quantitative tightening program, which began in 2022, has reduced the Fed’s balance sheet to $6.6 trillion, from around $9 trillion at its peak, putting pressure on risk assets such as bitcoin as the Fed tries to suck liquidity from the system.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in a speech, while also opening the door to further interest rate cuts.

This week, analysts with JPMorgan and Bank of America predicted the Fed will this month stop shrinking its $6.6 trillion balance sheet, in notes seen by Bloomberg, ending a process designed to remove liquidity from financial markets.

"Money markets at current or higher levels should signal to the Fed that reserves are no longer ‘abundant,," Bank of America’s Mark Cabana and Katie Craig wrote.

Meanwhile, the Fed is widely expected to cut interest rates again, shaving off another 25 basis points next week after resuming its rate cutting cycle in September—something that is also expected to fuel risk assets such as bitcoin as cash more easily flows around the system.

The delayed consumer price index (CPI) report for September on Friday showed U.S. inflation rose less than expected to 3% last month, below the expectations of 3.1% among economists polled by Bloomberg.

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“Given the latest news on layoffs, some analysts may be wondering if the central bank should go for a bigger cut, if not this month, then maybe in December,” David Morrison, senior market analyst at Trade Nation, said in emailed comments.

“The Federal Reserve has made it clear that it is far more worried about the labour market than it is about inflation.”

The bitcoin price has matched gold’s rally over the last 12 months, with the pair surging as part of the so-called "debasement trade” that’s seen traders turn to hard assets like gold, silver and bitcoin as hedges against money printing and inflation that reduces the dollar’s purchasing power.

“[Gold and silver are] really being purely valued on fiat debasement, whereas bitcoin and crypto still have this connection to to U.S. big tech, which I think they’ll shed at some point,” Hayes told Milk Road. "But in any event, we know which way the world is going. It’s more fiat debasement. Those who have the foresight, who are looking what’s going on, they are voting with their money and they’re saying, ‘I want gold. I want bitcoin. I want silver. I want stocks.’ I just think that crypto is the fastest horse.”