The Fed Announces QT Will End in December

The Federal Reserve concluded its FOMC meeting by reducing interest rates to 4% and announcing that quantitative tightening (QT) will end on December 1st, prompting discussions on its potential impact on risk assets like Bitcoin, whose price movements are increasingly influenced by the market rather than the Fed.

• The Fed cut rates to 4% but pushed back on further December cuts due to strong economy and inflation.

• Quantitative tightening is ending December 1st, acting as risk management to preserve market liquidity.

• Bitcoin's market cycle shows divergence from past patterns, favoring Bitcoin over altcoins amidst current uncertainties.

The Federal Reserve's recent FOMC meeting saw a rate cut to 4% and a firm pushback from Powell against a December rate cut expectation, indicating a data-dependent approach due to strong consumer spending and rising inflation. The more significant announcement for markets was the end of quantitative tightening (QT) on December 1st, which has implications for asset liquidity and investor sentiment, particularly concerning Bitcoin's market cycle. While past cycles offer some guidance, the current economic conditions suggest a nuanced outlook for risk assets.

FOMC Rate Cut & Outlook

• 00:00:28 The Federal Reserve recently cut interest rates to 4% at its FOMC meeting, but Chairman Powell strongly resisted expectations of a further rate cut in December, noting that a 90% market probability had dropped significantly. This stance is attributed to strong consumer spending, economic growth, and rising inflation, as well as the impact of a government shutdown on data availability, suggesting future rate decisions will remain data-dependent.

Fed's Reaction to Market

• 00:03:38 Historically, the Federal Reserve tends to follow the two-year yield, rather than leading the market. The two-year yield typically tops out and declines before the Fed reduces interest rates, and rises before the Fed increases them. This pattern indicates that the market's actions and expectations often dictate the Fed's monetary policy adjustments, rather than the Fed unilaterally controlling market direction.

Quantitative Tightening Ends

• 00:04:45 The Federal Reserve announced that quantitative tightening (QT) will officially conclude on December 1st, a move considered a form of balance sheet risk management. This decision comes as excess liquidity from the pandemic has diminished, evidenced by the significant drop in the reverse repo facility, and continuing QT risks negatively impacting banks and market function. Ending QT is intended to preserve market liquidity, although unlike 2019, inflation remains above target.

Bitcoin's Cycle & Outlook

• 00:08:39 The end of quantitative tightening and current rate cuts prompt questions about their impact on Bitcoin's market cycle, which has shown different behavior compared to 2019. While some predict a market top in Q4 of the post-halving year, the absence of widespread euphoria this cycle suggests a potential for a slower downturn rather than a massive crash, especially with higher Bitcoin dominance levels. Investors are advised to hold Bitcoin given its likely outperformance in an uncertain environment where altcoin liquidity may flow back to it.