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🤔 Understanding the Federal Reserve's 'Two Hands': Lowering Interest Rates and Expanding the Balance Sheet, What Are They Really Doing?

Recently, market news has been a bit dazzling: the Federal Reserve is lowering interest rates on one hand while purchasing hundreds of billions in government bonds each month (expanding the balance sheet) on the other. Many friends are confused: is this 'injecting liquidity' or 'withdrawing liquidity'? In fact, this is the key to understanding the current macroeconomic chess game.

Core Essence: The Purposes are Completely Different
You can view lowering interest rates and expanding the balance sheet as the Federal Reserve's 'two hands', but they are doing two different things:

⭐️ Lowering Interest Rates (Right Hand - Adjusting the Economy): The goal is to stimulate or cool the overall economy. Lowering interest rates makes loans cheaper for businesses and individuals, thereby encouraging investment and consumption.
⭐️ Expanding the Balance Sheet (Left Hand - Maintaining Stability): The goal is to ensure that the financial system does not 'run out of liquidity'. By purchasing assets (such as government bonds), it directly injects reserves into the banking system, preventing a liquidity shortage from causing market dysfunction.

Current Combination: Each Playing Its Role in 'Loosening and Stabilizing', is a 'Combination Punch' of these two tools:

1. Lowering Interest Rates: Possibly due to concerns about the economy or job market, aimed at supporting the economy.
2. Expanding the Balance Sheet (such as the recent monthly $40 billion in bond purchases): This is due to the fact that after the last round of balance sheet reduction, bank reserves became indeed tight, technically 'injecting liquidity' to prevent short-term interest rates from spiraling out of control.

Therefore, it cannot simply be understood as 'massive liquidity injection'. This is a delicate operation of both 'stabilizing the economy' and 'preventing risks'.

Historical Combinations: Three Classic Models
The relationship between these two hands is not fixed; historically, there have been three main combinations:

⭐️ Double Easing (Lowering Interest Rates + Large Balance Sheet Expansion): Responding to crises, strong stimulation (like in 2020)
⭐️ One Loosening One Tightening: Policy objectives separated, maintaining stability
⭐️ Double Tightening (Raising Interest Rates + Balance Sheet Reduction): Fighting high inflation (like in 2022)

Implications for the Market
It is crucial to understand this: the current 'technical balance sheet expansion' mainly restores financial liquidity, while 'lowering interest rates' conveys an attitude towards the economic outlook. The improvement in liquidity (expansion of the balance sheet) provides fundamental support, while the direction of the interest rate path (lowering interest rates) affects medium- to long-term expectations. Understanding the coordination of these 'two hands' allows for a clearer judgment of the underlying logic of the market.
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Important news is coming, interest rate cuts are imminent, where will the market go!
(II)(II)(II)
I think the Federal Reserve is highly likely to cut rates more than three times next year, and not just by 75 basis points!

Because Trump's recent remarks said: cutting rates is the touchstone for the position of the Federal Reserve Chairman!
The Federal Reserve Chairman appointed during his term must be dovish and supportive of rate cuts! No matter how many rate cuts happen in the first half of next year, there will definitely be more rate cuts in the second half!

He wants to reduce the government's scale of U.S. Treasury bonds and has repeatedly criticized Powell for calling for rate cuts! Rate cuts can be said to be a major event that Trump has been thinking about!

Back to the crypto market, I do not believe there will be particularly large fluctuations when this rate cut takes effect, and there will certainly not be dreams of hitting new highs, although I also look forward to it! But I trust the situation more!

The Federal Reserve's balance sheet reduction has ended, and in fact, I would prefer to see an expansion of the balance sheet, which would result in more funds flowing out. Without sufficient funds, it is impossible to rely solely on a few institutions like Strategy and BitMine to drive the market up!

Currently, too many people are bearish. I believe you should have more faith in yourself. If you think we are already in a bear market, or that it will become even more bearish in the future, then you should liquidate or short! But if you think Bitcoin and Ethereum can still rise, you should hold on and accumulate at lower prices, waiting for a new wave of market activity!

BTC and ETH will definitely reach new highs! And I feel that the time won't be too long, the four-year bull-bear cycle may have already been broken, and the impact of the halving is not significant anymore, as the proportion of unmined BTC is already low! The altcoin season may really be over, the strong will remain strong, and the weak will be eliminated, causing you to doubt life as prices fall!

#美联储扩表 Is this a signal for quantitative easing? Is it the beginning of gradual QE?