Does the Federal Reserve now wish China would sell off U.S. Treasuries sooner? Why haven't they cut interest rates yet? Because they are well aware that China will eventually sell off its $780 billion in U.S. debt. The only entity capable of absorbing such a large amount of Treasuries on the market is probably the Fed itself, so they have been waiting for this opportunity.

To be clear, the Fed may not necessarily be "hoping" for China to dump its holdings immediately, but it does need a sufficiently legitimate reason to re-enter the Treasury market. Due to issues with U.S. fiscal policy, the problem is no longer about lacking buyers but about debt growing larger, refinancing becoming more frequent, and any spike in yields potentially pushing interest payments even higher. U.S. federal debt has approached $38.98 trillion, and the Congressional Budget Office (CBO) still projects a deficit of about $1.9 trillion in fiscal year 2026, with net interest payments around $1 trillion.
This is the deeper reason why the Fed has been hesitant to cut rates quickly. On March 18, the FOMC kept the federal funds rate at 3.5% to 3.75%. On the surface, they are focused on inflation, but fundamentally, they are concerned about "long-term yields spiraling out of control and fiscal issues unraveling." Because if they cut rates too early, the market's concern won't be whether the economy soft-lands but whether the U.S. can only rely on cheaper short-term debt to roll over increasingly expensive long-term bonds.
China's reduction in holdings is causing tension in Washington, not because the scale could be a one-time blow, but because it’s like a nail being pulled out continuously. As of January 2026, mainland China held $694.4 billion in U.S. Treasuries, down significantly from $760.8 billion in January 2025. This indicates that China isn't emotionally selling off a few times but is gradually shifting its reserve structure from "single-dollar debt holdings" to a more diversified, sanctions-resistant, and less volatile portfolio.
Many believe that if China sells, no one will buy U.S. Treasuries anymore, but that’s an oversimplification of the market. Japan, the UK, various funds, bank balance sheets, and primary dealers can all absorb Treasuries; the New York Fed has also explicitly required primary dealers to maintain ongoing participation in Treasury auctions. The real issue isn't whether there are buyers for the initial issuance, but who is willing to continuously absorb the growing U.S. debt gap over the next few years with low yields and low volatility. Temporary transfers and long-term commitments are fundamentally different.
Because of this, the Fed’s main concern isn't whether China will sell, but that if China continues to sell, it will make it easier for the Fed to "legitimately" exit the market. The implementation statement from March 2026 clearly states: the Fed will continue to buy Treasury bills and, if necessary, purchase remaining maturities within three years to maintain ample reserves. In plain language, this means the tools are already on the table; they just need a better timing to act.
Therefore, what the Fed is truly waiting for isn't China to create a crisis for it, but for China to provide a narrative. As long as external selling, auction pressure, and term premium increases occur simultaneously, the Fed can re-expand its balance sheet under the guise of "maintaining market function" and "supplementing reserves." At that point, the apparent reason for buying is liquidity, but in reality, it’s supporting the U.S. fiscal borrowing ceiling. Ultimately, whether or not to cut rates is just a front; the real backstage drama is who will stabilize the $38 trillion debt system behind the scenes.