The Federal Reserve (FED) Chairman Powell hinted that QT will end, is a liquidity bull run for Crypto Assets coming?

The Chairman of the Federal Reserve (FED), Jerome Powell, revealed during a speech at the National Association for Business Economics that bank reserves are approaching adequate levels, and quantitative tightening (QT) may soon come to an end. This statement has sparked heated discussions in the market: does the end of QT signal a restart of QE?

The Federal Reserve (FED) Chairman Powell Signals Policy Shift

Federal Reserve Chairman Powell delivered a speech on October 14, 2025, at the National Association for Business Economics in the United States, signaling potentially significant changes to the cryptocurrency market landscape. He stated that the economic outlook has remained largely consistent since the September FOMC meeting, when the Federal Reserve lowered interest rates by 25 basis points in response to labor market risks primarily driven by supply-side issues.

What is more remarkable is that The Federal Reserve (FED) Chairman Powell emphasized that bank reserves are approaching adequate levels, suggesting that the quantitative tightening policy may soon come to an end to avoid excessive liquidity tightening harming economic growth. This statement immediately caused turbulence in the financial markets, especially in the highly liquidity-sensitive cryptocurrency sector.

According to the latest “dot plot” released by The Federal Reserve (FED), most policymakers expect two additional rate cuts this year, each by 25 basis points. Although some committee members believe that further rate cuts should not occur, market expectations align with the FED's updated baseline scenario, suggesting that rate cuts will be implemented in both October and December. This forecast also includes a continued cumulative rate reduction of 75 basis points at a pace of 25 basis points per quarter over the next year, which would lead to an upper limit of the federal funds rate reaching 3.00% by September 2026.

The clarification of this policy path provides rare certainty for the market. The employment report for September 2025 shows that the labor market is cooling, with only 150,000 jobs added and the unemployment rate rising to 4.1%, providing data support for Federal Reserve Chairman Powell's stance on interest rate cuts. Given that the market has fully digested the expectations of these two 25 basis point rate cuts, traders are looking for investment opportunities that can benefit from the decline in short-term interest rates.

Inflation risk remains the biggest concern for policy

However, Federal Reserve Chairman Powell's dovish stance is not without risks. The current policy is considered to be less restrictive than what the Federal Open Market Committee perceives, which increases the likelihood of inflation risks arising from previous accommodative policies. The Consumer Price Index report for September 2025 shows that the inflation rate exceeded expectations, reaching 3.8%, while the core inflation rate remains slightly above 4%.

This situation is reminiscent of the policy mistakes made in 2021. At that time, the Federal Reserve initially ignored the rising inflation, attributing it to “transitory” factors, and later had to adopt aggressive tightening policies, rapidly raising interest rates from near zero to over 5%. Some analysts warn that the Federal Reserve may commit policy errors again by focusing too much on the labor market while ignoring inflationary pressures.

The investment boom in artificial intelligence has added a new dimension to these concerns. Although the AI industry is relatively insensitive to interest rates, it is becoming increasingly reliant on debt financing. Recent industry analyses show that corporate bond issuance for artificial intelligence infrastructure has increased by 30% compared to the same period last year. In an environment of lower interest rates, this debt financing could expand further, creating strong tailwinds for demand-driven inflation.

The fiscal stimulus policy to be implemented synchronously next year may exacerbate this risk. Increased government spending combined with loose monetary policy will stimulate demand from both ends. In addition, inflation caused by tariffs will also have a certain impact and may affect The Federal Reserve's future forecasts. The intertwining of these multiple factors makes the policy path of Federal Reserve Chairman Powell full of uncertainty.

Professional traders are adjusting their strategies based on this outlook. The trading of a steepening yield curve is considered potentially profitable, which involves betting through derivatives that long-term interest rates will rise due to inflation concerns, even if The Federal Reserve (FED) lowers short-term rates. The strategy of going long on 10-year U.S. Treasury futures and shorting 2-year U.S. Treasury futures will directly benefit from this divergence.

In the long term, some traders are buying derivatives that can yield returns when the Federal Reserve (FED) is forced to abruptly change its policy in 2026. Purchasing call options on SOFR futures with a mid-2026 expiration is a relatively cheap way to hedge against the risk of current easing policy paths eventually triggering inflation issues, necessitating more aggressive measures.

Does ending QT equal starting QE? The market is caught in heated debate

The statement by Federal Reserve Chairman Powell regarding the potential end of quantitative tightening has sparked intense debate within the cryptocurrency community. The core issue is: does the end of QT mean a new round of quantitative easing (QE) is imminent? Analysts from different camps have provided sharply contrasting answers.

The representative figure of the optimistic camp is legendary trader Arthur Hayes. He announced on social media that “the era of quantitative tightening is over,” and called it a significant buying opportunity. Hayes bluntly suggested: “Hurry up and back the damn truck up, buy everything up.” This aggressive bullish stance reflects the strong expectations of some market participants for the return of liquidity.

The logic supporting this viewpoint is quite straightforward. If the Federal Reserve (FED) stops tapering, it means that liquidity is no longer being withdrawn from the market. Furthermore, if economic data continues to be weak, the Federal Reserve (FED) may be forced to restart quantitative easing, similar to its actions during the COVID-19 pandemic. Historical experience shows that quantitative easing policies tend to drive up the prices of risk assets. During the QE period from 2020 to 2021, the price of Bitcoin soared from below $10,000 to over $60,000, an increase of more than 500%.

Some analysts expect that the market will begin to see the effects of this decision by Federal Reserve Chairman Powell within the next six months. If quantitative easing is truly restarted, Bitcoin and altcoins could become some of the biggest beneficiaries. When a large amount of liquidity floods into the market, investors often seek high-yield risk assets, and cryptocurrencies fit this characteristic.

Conservative Warning: We're Still Far from QE

(Source: Brett)

However, not everyone shares the same optimistic outlook. Renowned analyst Brett believes that many interpretations of the comments made by Federal Reserve Chairman Powell are overly aggressive. He points out that quantitative easing usually only occurs when the federal funds rate is close to zero, and currently, the rate remains at 4.2%, well above the historical conditions for initiating QE.

Brett emphasized that Powell only hinted that the Federal Reserve (FED) might soon finish the balance sheet reduction, and ending the quantitative tightening policy does not mean that quantitative easing will start immediately. He pointed out in his analysis: “Quantitative easing (blue shaded area) only begins when the federal funds rate approaches 0. We are still at 4.2% now. Unless an economic disaster occurs, it may take 12 months of rate cuts to reach the levels prior to the implementation of quantitative easing.”

This viewpoint is supported by historical data. Looking back at past monetary policy cycles of The Federal Reserve (FED), quantitative easing has only been initiated in extreme situations where interest rates are near zero and conventional monetary policy tools have become ineffective. Currently, The Federal Reserve (FED) still has ample room to cut rates and has not yet reached the point where unconventional policy tools need to be employed.

Regarding the reaction to Bitcoin, Brett presented an interesting perspective: the asset tends to fluctuate cyclically rather than directly responding to quantitative easing or tightening policies. In his view, the long-term trend of Bitcoin is somewhat independent of monetary policy. He pointed out, “Bitcoin often pays more attention to cycles than to QE and QT. Note how Bitcoin fluctuates during quantitative tightening and quantitative easing. The cyclicality of Bitcoin is much stronger than people are willing to admit.”

What is even more concerning is that historical data since 2011 shows that Bitcoin typically experiences a decline for several months after each phase of quantitative easing or tightening ends. This “sell the fact” market reaction pattern raises a critical question: will this time be different? If The Federal Reserve (FED) simply ends quantitative tightening without injecting new funds, the outlook becomes even more uncertain.

The market is currently in a critical wait-and-see period. The upcoming Producer Price Index (PPI) and unemployment rate data may provide clearer clues for future trends. If inflation data continues to exceed expectations, the easing path of Federal Reserve Chairman Powell may be hindered; however, if the labor market further weakens, the possibility of interest rate cuts or even QE will increase. For cryptocurrency investors, closely monitoring these macro data changes will be key to grasping the market rhythm.