- Liquidity pressure is reversed by the Federal Reserve ending quantitative tightening and reducing rates and indicating that credit and investments will be supported once again.
- The Fed has been keen on stability, as noted by Jerome Powell, which represents a measured transition to flexible policy and alleviation of the worldwide financial situation.
- As liquidity comes back, banks can increase their lending, investors will be able to rebuild trust and risk assets such as crypto might be in a new cycle of growth.
Liquidity returns after the Federal Reserve makes a clearer policy shift by cutting rates 25 basis points and declaring an end to quantitative tightening (QT) on December 1. Tis is the start of a whole new phase for global markets, potentially preparing for a new expansion cycle.
End of QT Signals a Reversal in Liquidity Conditions
The Federal Reserve’s decision to end QT marks a fundamental change in monetary direction. Since 2022, the Fed’s balance sheet reduction had withdrawn trillions from the financial system, restricting credit growth and tightening overall liquidity. With QT ending, that pressure will ease.
This shift means banks will retain higher reserves, funding costs could decline, and money circulation may improve. According to Bull Theory, this transition stops the steady liquidity drain that weighed on risk assets, especially altcoins, which struggled to sustain strong rallies under tightening conditions.
Powell’s Comments Reinforce a Controlled Policy Transition
Federal Reserve Chair Jerome Powell described the latest rate cut as a move focused on “risk management.” He stated that while inflation is cooling, it remains above target, and the broader economic outlook has not changed substantially since September.
Powell noted the committee’s members had “very significantly different views” on the decision, demonstrating the policymakers are being careful about further easing. “We haven’t made a decision on December,” he added, suggesting that the central bank is trying to remain flexible rather than commit to a prolonged cutting cycle.
Liquidity Returns as Spending Slows and Credit Loosens
As inflation moderates with declining consumer spending, especially for lower-income cohorts, when liquidity returns to markets becomes increasingly important. Powell said there were AI job cuts and investments in data centers, an example of a structural change in the economy that they continue to observe.
Ending QT could be a way to balance those structural changes while also bringing stability to credit conditions. With liquidity restored, banks could have a broader appetite to lend, and investors could regain their confidence. The monetary policy is “modestly restrictive,” suggesting that it remains cautiously restrictive but is likely transition to a more accommodative policy.
Markets Eye Expansion as Liquidity Cycle Turns Positive
The Bull Theory post on X stated, “Liquidity might be coming back,” highlighting the significance of the Fed’s decision for risk assets. The end of balance sheet runoff and cheaper credit may stimulate renewed capital rotation into equities and crypto markets.
While Powell avoided signaling the start of a full easing cycle, the broader message was clear—the tightening era is over. With liquidity returning and policy pressures easing, markets could be quietly entering an early stage of expansion, setting up conditions for renewed momentum across both traditional and digital assets.
