Powell Signals End of Balance Sheet Tightening While Bitcoin Sees Sharp Swings
- Jerome Powell suggests the Fed could stop reducing its balance sheet very soon.
- Markets anticipate interest rate reductions as policy becomes more uncertain due to data delays.
- Bitcoin trades at the $112,000 level, showing renewed activity and mild volatility.
Federal Reserve Chair Jerome Powell signaled on Tuesday that the U.S. central bank may soon end its balance sheet reduction program, a process known as quantitative tightening. Speaking at the National Association for Business Economics (NABE) conference in Philadelphia, Powell said the Fed is close to achieving “ample” reserves, a condition necessary before halting the runoff of its $6.6 trillion bond portfolio.
“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. “We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”
The statement suggested that the Fed could be preparing for a shift in policy, one that might include interest rate cuts in the coming months.
Interest Rate Outlook and Economic Crosscurrents
Powell avoided giving a timeline for potential rate cuts but acknowledged growing signs of labor market weakness. His remarks aligned with market expectations that the Fed may soon ease monetary policy. Investors now anticipate a quarter-point cut, followed by another reduction in December.
The Fed faces a complex backdrop. The U.S. government shutdown has delayed critical economic data, including the September jobs report, complicating decision-making. An update on consumer prices is now expected on October 24, just days before the October 28–29 policy meeting.
Yet, differing economic forces continue to pull the U.S. economy in opposing directions. EY-Parthenon Chief Economist Gregory Daco told NABE attendees that tariffs and declining immigration have constrained growth, even as artificial intelligence investments fuel expansion. “These forces are offsetting one another,” Daco said. “Not necessarily proportionally, not necessarily at the same time, but it’s an exciting duel.”
Fed’s Pandemic-Era Actions Draw Renewed Scrutiny
Powell also addressed criticism surrounding the Fed’s bond-buying programs during 2020 and 2021, which aimed to stabilize financial markets during the pandemic. The purchases, involving longer-term Treasury bonds and mortgage-backed securities, were intended to reduce long-term borrowing costs and support recovery.
Those actions have since drawn heavy criticism from Treasury Secretary Scott Bessent and some Trump administration allies, who argue that they inflated asset prices and complicated the later withdrawal of liquidity.
The Fed began shrinking its asset portfolio in mid-2022, reducing it from nearly $9 trillion to about $6.6 trillion today. The unwinding, while gradual, has drained reserves from the financial system. Powell noted that the central bank would continue until signs emerge that liquidity conditions are tightening excessively. “We may approach that point in the coming months,” he reiterated.
Related: Will Powell’s Jackson Hole Speech Signal a Fed Rate Cut?
Bitcoin Trades Lower Amid Fed Developments
Meanwhile, at press time, Bitcoin (BTC) trades at $112,544.17, marking a 1% daily decline, according to CoinMarketCap. Its market capitalization stood at $2.24 trillion, while the fully diluted valuation (FDV) reached $2.36 trillion. The 24-hour trading volume increased by 28.99% to reach $91.33 billion.
Throughout the day, Bitcoin’s price swung sharply, rising to around $112.99K before slipping toward $110K. It later recovered above $112K, reflecting cautious optimism among traders despite the heightened volatility.
While the Fed is getting ready to change its monetary policy, one important question still exists: Will the cutting of interest rates bring back the risk appetite of investors not only in digital assets but also in the stock markets?
