Tomorrow morning's Federal Reserve meeting is definitely the market focus! How U.S. stocks and the cryptocurrency space will move next is crucial in this meeting.
A rate cut is basically a given, 25 basis points, with a probability close to 100%, definitely.
However, there is still a suspense: will they stop QT (Quantitative Tightening)? Powell mentioned before that they might halt QT in the coming months.
Recently, liquidity in the U.S. money market has been a bit tight, with major banks like Goldman Sachs and Morgan predicting that the Federal Reserve will soon call off QT.
So what exactly is QT reducing? Mainly two types: one is Reverse Repo (RRP), and the other is bank reserves.
You can think of RRP as a 'funding pool'—when there’s too much money in the market but not enough bonds, funds will lend their idle cash to the Federal Reserve to earn some interest. This pool acts as a liquidity regulator.
In the past two years of QT, the first thing to be drained was the water in the RRP pool. Now the RRP is nearly bottomed out, and if QT continues, it will have to touch the bank reserves.
But if bank reserves are too few, short-term interest rates might spike suddenly, making liquidity even tighter, and the market is sure to shake.
So many people now believe that the Federal Reserve might directly announce the halt of QT tonight, which would be the best outcome for the market.
If that really happens, get ready to cheer, as the market may continue to thrive, and everyone can happily count their money!💰