The introduction of the Federal Reserve's quantitative easing policy came earlier than expected.
The bond market is sending signals that the Federal Reserve can no longer ignore.
Quantitative easing is about to return for the following reasons.
Since September 2024, the Federal Reserve has cumulatively cut interest rates by about 150 basis points.
Nevertheless, the yields on 10-year and 30-year Treasury bonds are still higher than before the first rate cut.
This means the market believes the Federal Reserve has made a policy mistake.
And every time this has happened in the past, the Federal Reserve has never acknowledged its mistakes.
It has only done one thing, which is to restart the quantitative easing policy.
This time, it will not be any different.
First, the cracks in the economy have already appeared.
Small banks in the U.S. are facing ongoing liquidity pressures.
They have continuously sought emergency assistance from the Federal Reserve, including the latest capital injection in December last year.
If small banks cannot raise funds, what the Federal Reserve needs is a long-term solution, not repeated emergency responses. For the Federal Reserve, the way to solve this is very direct: to grasp the role of the quantitative easing policy.
Federal Reserve purchases Treasury bonds → bond prices rise → yields fall → dollar weakens → liquidity expands.
This combination is extremely favorable for risk assets.
We have already seen the blueprint.
In 2020-2021, the quantitative easing policy suppressed yields, strengthened the dollar, and caused explosive growth in liquidity.
Risk assets have experienced one of the strongest rallies in history.
The price of Bitcoin rose from $3,500 to $69,000
Altcoins have experienced the most intense surge in history.
But the signal for quantitative easing is not only sent by banks.
Major institutions also expect that the quantitative easing policy will make a comeback.
UBS expects the Federal Reserve to start purchasing about $40 billion in Treasury bonds from early 2026.
U.S. banks expect the Federal Reserve to announce a risk management plan.
(RMP), which will increase bank reserves.
In addition, the Japanese bond market is also putting significant pressure on the Federal Reserve.
Due to the rise in Japanese government bond yields, investors are selling Treasury bonds, causing yields to soar.
The market expects the Federal Reserve to step in and buy these Treasury bonds in the coming months, thereby increasing yields.
In addition, most central banks around the world have already restarted easing policies.
China is relaxing regulations.
Despite the rising yields, Japan is still relaxing financial regulations.
Canada is relaxing regulations, and the Federal Reserve is the last opponent.
Once it converges with other currencies, global liquidity will surge dramatically.
Restoring the quantitative easing policy means
Bond yields decrease
The dollar is weakening
Risk appetite has increased.
More funds are flowing into Bitcoin, Ethereum, and other cryptocurrencies.
This is similar to the environment that triggered the super bull market of 2020-2021, and this situation may happen again.$BTC
