Fed’s QT to End Soon, But Powell Warns Congress Threatens Rate Control Stability – Crypto at Risk?

Core Viewpoint - The Federal Reserve's balance sheet reduction campaign may conclude soon, with potential interest rate cuts on the horizon, impacting various markets including cryptocurrencies and gold [1][2]. Group 1: Federal Reserve's Balance Sheet and Monetary Policy - The Federal Reserve's balance sheet has decreased from nearly $9 trillion in mid-2022 to approximately $6.6 trillion, with a reduction of about $2.4 trillion since then [2][3]. - Powell indicated that the Fed has no intention of reverting to its pre-COVID balance sheet size of $4 trillion, as non-reserve liabilities are now about $1.1 trillion higher than before the pandemic [3]. - The Fed's ability to pay interest on bank reserves is under threat from Congress, which Powell warned could undermine the central bank's control over interest rates [1][5]. Group 2: Market Reactions and Economic Indicators - Gold prices reached a record high near $4,200, reflecting a 59% increase year-to-date, driven by expectations of interest rate cuts [2]. - The labor market shows signs of weakness, with ADP data indicating a loss of 32,000 jobs in September, and Powell noting that both layoffs and hiring remain low [4]. - Powell acknowledged rising downside risks to employment, suggesting a likely quarter-point rate cut at the upcoming meeting on October 28-29 [2][4]. Group 3: Critiques and Future Outlook - Powell faced criticism regarding the timing of quantitative easing during the pandemic, admitting that the Fed could have acted sooner [4]. - There are emerging signs of tightening liquidity conditions, which could potentially hinder economic growth if reserve reductions continue [3].