JPMorgan, BofA Predict Fed Ending $6.6T QT in October and Bitcoin May Win

The Federal Reserve’s quantitative tightening (QT) program may soon come to an end. Strategists at JPMorgan and the Bank of America believe that the central bank will stop shrinking its roughly $6.6 trillion balance sheet this month, bringing an end to the Fed quantitative tightening.

According to a recent Bloomberg report, these Wall Street giants have moved up their QT program predictions due to a surge in dollar funding costs. They initially anticipated the move in December or early 2026.

JPMorgan Predicts Fed Quantitative Tightening End

JPMorgan and Bank of America strategists predict that the development will occur this month, effectively ending the $6.6 trillion balance sheet unwind from the Federal Reserve.

The Fed QT program, a large and influential market factor since it began in 2022, allows the Fed’s balance sheet of $6.6 trillion to be reduced without replacing maturing Treasury and mortgage-backed securities to gradually remove excess liquidity from the financial system to fight inflation and achieve economic stability. However, with rising borrowing costs in repo and funding markets, concerns are growing about reserve scarcity in the banking system.

In a client note, Bank of America’s Mark Cabana and Katie Craig wrote, “Money markets at current or higher levels should signal to the Fed that reserves are no longer ‘abundant.’” They urged to “cut the crap before things snap.”

At the same time, JPMorgan strategist Teresa Ho noted that markets have become increasingly frictional, highlighting the Fed’s dwindling reverse repo facility as a key warning sign. “Markets have been operating with much more friction,” noted the strategist. This development has led TD Securities and Wrightson ICAP to revise their expectations for the end of quantitative tightening to October. However, Barclays and Goldman Sachs anticipate a slightly later conclusion to the runoff.

Several other Wall Street analysts, including those from Wrightson ICAP, Evercore ISI, and Jefferies, also predict that the Federal Reserve will conclude its QT program by the end of October.

What the Fed Says?

Notably, the central bank chair, Jerome Powell, indicated that the balance sheet reduction is likely to conclude when reserves reach a level “somewhat above” what’s considered ample, aiming to prevent market disruptions. He added, “We may approach that point in the coming months.” This suggests the bank is nearing the end of the Fed quantitative tightening program.

Another noteworthy event the market is watching closely in the wake of the QT program is whether the Fed will do anything about interest rates at the FOMC meeting later this month, scheduled for October 28-29. Powell and some others have mentioned the possibility of rate cuts at previous meetings.

But it is uncertain if a rate cuts may occur at the FOMC meeting, as the government shutdown has now entered the 23rd day with no signs of resolution. The lack of major data releases, starting with the jobs report among others, is putting the Federal Reserve in a challenging position.

How Will This Impact Bitcoin and Crypto?

If the Fed stops QT, liquidity would dry up, and we would experience a monetary loosening that would bring forth more investment, lower Treasury yields, and demand risk assets like Bitcoin.

Historically, Bitcoin has performed well during QE periods and poorly during QT periods. For instance, during QE from 2020-2021, Bitcoin moved from $7,000 to $69,000. However, once QT began in 2022, as liquidity was tightening, Bitcoin moved from $47,000 down to $15,000. Now, many analysts believe that if the Fed quantitative tightening were to go away, there is a possibility that fresh inflows into Bitcoin may rise and the price may surge.

 

According to the long-standing analyst Michaël van de Poppe, Bitcoin has been trapped in a sideways move between $100,000 $120,000 in the last six months, which indicates that it is likely going to create a major break either way. Additionally, he expects the next movements of the currency to come from the FOMC meeting, potential rate cuts in the future, and monetary policy changes.

Conclusion

The expected cessation of the Fed’s quantitative tightening and the possible cuts in rates will be a strong factor for the inflow of liquidity into the financial system, raising the risk appetite that in turn might drive the prices of Bitcoin higher.

Frequently Asked Questions

1. What does the Federal Reserve’s quantitative tightening (QT) program entail?
   The QT program is the Fed’s major action of the decade, where its asset holding is reduced by $6.6 trillion thereby balancing and normalizing the dollar’s liquidity in the global financial system as a measure to fight inflation.
2. How could the cessation of QT impact Bitcoin in any way?
   The cessation of QT could increase the financial system’s liquidity and thereby turn investors towards higher risk assets. This could result in an increase in the price of Bitcoin.

Glossary

• Quantitative Tightening: It is a central bank action to reduce its balance sheet by selling or not rolling over securities, thus resulting in a decrease of the monetary base in the financial system.
• Quantitative Easing: A central bank action that enlarges its balance sheet by purchasing securities leading to a monetary base increase in the financial system.
• Federal Reserve: The U.S.A. central bank that has the ultimate power to decide the money supply and control the banking industry.
• Balance Sheet: A financial report showing the assets, liabilities, and equity of a company or, in this case, the Federal Reserve.
• FOMC Meeting: A gathering of the Federal Open Market Committee, which decides on the money supply, interest rates, and hence opining on the central bank’s position regarding quantitative easing or tightening.

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