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Former New York #FedralReserve trader Joseph Wang, known as The Fed Guy, believes the U.S. central bank could soon reverse course and restart balance sheet expansion before the end of 2025 — a move that could quietly reshape global liquidity conditions. After three years of balance sheet reduction, or “quantitative tightening,” the Fed may no longer have the option to keep draining liquidity from the system without destabilizing short-term rates.

Wang argues that this isn’t about rescuing risk assets, manipulating Treasury yields, or even preventing a liquidity crisis — it’s about control. In his words, if the Fed doesn’t inject fresh liquidity into the financial system by buying securities, it will gradually lose control over short-term interest rates, which are the foundation of its monetary policy framework.

The liquidity squeeze behind the scenes

The pressure stems from two interconnected forces: the Treasury General Account (TGA) and the repo market. As the U.S. Treasury rebuilds its cash balance in the TGA, it effectively pulls liquidity out of the banking system, leaving fewer reserves available in the financial sector. At the same time, the strong demand for repurchase agreements (repos) — short-term loans secured by Treasuries — reflects how tight dollar liquidity has become.

If this continues, Wang expects the Fed to step in and expand its balance sheet by $300 billion to $500 billion per year just to stabilize short-term rates. This move would quietly mark a transition from contraction to neutral or mild expansion, without formally announcing a new round of quantitative easing (QE).

The real motive: control, not stimulus

While some investors interpret potential balance sheet growth as a bullish signal for equities and crypto, Wang clarifies that this is primarily a technical response, not a macroeconomic stimulus. The goal isn’t to inflate asset prices but to keep monetary policy functional — ensuring that the Fed Funds rate remains the central anchor for global dollar liquidity.

However, the market rarely distinguishes motive from effect. History has shown that whenever the Fed expands its balance sheet, even for structural reasons, risk assets benefit indirectly through renewed liquidity and confidence.

A quiet inflection point

If Wang’s projection proves accurate, the Fed could soon enter a new phase of “stealth easing”, where policy normalization quietly gives way to liquidity management. The implications would stretch far beyond U.S. borders — affecting dollar funding costs, emerging market flows, and even crypto liquidity conditions.

As 2025 draws to a close, the story may not be about whether the Fed cuts rates — but whether it quietly turns the liquidity tap back on to preserve control. And when that happens, the market will likely feel the ripple long before the Fed admits it’s easing again.

— A Market Observer

Markets were already on edge but Trump’s updated national security strategy pushed volatility even higher. The document doesn’t just adjust U.S. foreign policy; it rewrites the expectations that shaped global defense spending for decades. And crypto felt the impact faster than almost any other asset class.
A strategy that shifts America’s global role
The core message of the new strategy is simple but heavy:

America will no longer carry the bulk of the world’s defense burden.
The plan argues that U.S. allies must take far more responsibility for their own regions, repeating the same warning Trump delivered at the United Nations last year. This isn’t just a military stance , it’s an economic one.
Investors reacted not to the politics, but to the downstream effects:
possible shifts in defense budgetschanges to government borrowinginflation pressureand the risk of slower monetary easing
All of these factors move financial markets instantly, especially crypto.
Why crypto reacted so fast
The sell-off wasn’t caused by anything inside the crypto ecosystem.

The shock came from what the strategy implies.
If NATO members raise defense spending from 2% to 5% of GDP, governments will need massive borrowing. That kind of surge usually pushes inflation higher, forcing central banks to rethink rate cuts.
And crypto is extremely sensitive to interest-rate expectations.
Bitcoin’s strongest rallies historically came during periods of lower rates and expanding liquidity. Anything that delays easing , or hints at future inflation , reduces appetite for risk assets. That’s why Bitcoin reacted almost immediately.
Markets still expect the Fed to cut
Despite the volatility, traders have not abandoned the idea of a rate cut next week:
CME FedWatch shows an 86% chance of a 25 bps cut.Reuters’ economist survey shows similar expectations.Polymarket traders place the odds at 94%.These expectations kept the market from dropping deeper, even as geopolitical tensions clouded the outlook.
A market caught between fear and anticipation
Investors are now trying to balance two forces:
The possibility of real monetary easingThe uncertainty triggered by Washington’s new global posture
This tension has revived old conversations about whether another prolonged downturn , even a new crypto winter , could form if geopolitical risks keep rising.
For now, all eyes turn to the Federal Reserve.

A confirmed rate cut could steady Bitcoin and restore confidence.

A hesitation or a more cautious tone could send risk markets into another decline.
The Fed’s next decision may decide whether this volatility becomes a temporary shakeout , or the start of a deeper correction.
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