Liquidity Turns: Fed Ends QT, Rate Cut Hints at Risk Rally Ahead

TLDR:

• The Fed cuts rates by 25 bps and ends QT on December 1, signaling the end of monetary tightening.
• Liquidity may return as the Fed halts balance sheet runoff, easing financial pressure on risk assets.
• Powell described the move as “risk management,” not the start of a full easing cycle.
• Analysts expect the liquidity shift could trigger new capital rotation into Bitcoin and altcoins.
  

The Federal Reserve has flipped a major switch. Liquidity, long drained from global markets, could soon return. 

On Wednesday, the Fed announced a 25-basis-point rate cut and confirmed plans to end quantitative tightening (QT) on December 1. That move halts two years of balance sheet runoff that had tightened credit across markets. 

For investors, it signals a shift from contraction to potential expansion.

Crypto-focused outlet Bull Theory reported that this decision could “change the direction of liquidity completely.” For months, traders blamed QT for choking market rallies. 

Now, with the runoff ending, banks may retain more reserves, credit could loosen, and liquidity might start stabilizing.

Fed Ends QT: What It Means for Crypto and Market Liquidity

The end of QT marks a turning point. Since 2022, the Fed has withdrawn trillions from circulation to fight inflation. That reduced liquidity across financial systems, leaving crypto and other risk assets struggling to build momentum. 

With QT now winding down, the cash drain stops, potentially reopening the path for market inflows.

During his press conference, Chair Jerome Powell said the move was “risk management.” He noted that inflation is cooling but remains above target. Employment data, he added, still shows a strong labor market. Despite mixed committee views, Powell said the decision was meant to maintain stability rather than launch a full easing cycle.

Markets heard something different. Ending QT means the Fed stops shrinking its balance sheet, which directly impacts liquidity. That’s often the spark that revives risk-taking across assets, including Bitcoin and altcoins. 

As Bull Theory pointed out, “liquidity will start stabilizing,” suggesting conditions could soon favor renewed capital rotation into crypto.

Powell’s Tone: Caution, but a Shift in Direction

Powell avoided confirming future cuts, saying, 

He described internal disagreements within the committee, noting some members wanted to pause and assess. Still, even cautious language couldn’t hide what traders saw as a clear inflection point.

The Fed acknowledged slower consumer spending, especially among lower-income households. Officials also mentioned tracking AI-driven layoffs and data center expansion. 

These observations hinted at a more careful, reactive approach moving forward. While the central bank isn’t ready to commit to more rate cuts, the tightening phase appears over.

For crypto investors, that’s the headline. Liquidity is turning, credit is loosening, and the next phase of capital rotation could already be taking shape.

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