Cryptocurrency investors often find numerous reasons to despair when market charts turn red. However, the primary issue lies in the belief that neither the upward nor the downward trends will end. While this week experienced a downturn with whispers of the onset of bear markets, it’s noteworthy that Bitcoin remains only $24,000 below its all-time high. Meanwhile, the Federal Reserve (Fed) is concluding its quantitative tightening (QT) phase, adopting a neutral position in preparation for upcoming quantitative easing (QE). There’s much to celebrate.
Understanding Fed’s QT and QE
Quantitative Easing (QE) and Quantitative Tightening (QT) remain fundamental concepts concerning the Fed. QE involves the Fed (or other central banks) purchasing securities like bonds and mortgage-backed securities (MBS) to inject liquidity into the system. The aim is to lower long-term interest rates, support economic growth and employment, and mitigate deflation risks. The Fed’s asset holdings generally rise, and thus, the dollar supply increases in the wider market. The 2008 and 2020 periods serve as excellent examples, laying the groundwork for the 2021 bull run.
QT, on the other hand, involves the Fed reducing its bond holdings without reinvesting matured assets or selling them. This process aims to control inflation, reduce liquidity, and constrict the money supply, as witnessed from 2022 to October 2025.
Emerging QE Phase
Technically, we are still amid QT, as even though interest rates have decreased, balance sheet reduction hasn’t fully ceased. However, it’s expected to halt. This pivotal transition was highlighted in the Fed’s pre-October meeting interest rate decision, wherein it announced that starting December, the balance sheet reduction would stop, switching from tightness to a neutral stance.
Why is this shift important? Although initially imperceptible, short-term debt purchases might pave the way for the Fed to commence expansion, moving beyond this neutral phase. QT is ending, and QE is beginning, raising apprehensions about potential declines during this transitional period. Some attribute this week’s market correction to this expectation, but with monetary expansion on the horizon, why should temporary dips in cryptocurrencies and stocks lead to disappointment?
New York Fed Insights
Earlier today, the New York Fed shared its inflation expectations, offering significant insights. This development will be elaborated further with commentary from notable figures regarding expectations for 2026. For those less concerned with current inflation conditions, feel free to skip to the next section. The New York Fed stated that short-term inflation expectations are declining, while labor market predictions remain mixed.
A vital tidbit: The New York Fed is the most influential of the 12 regional Fed banks, tasked with executing open market operations, including Treasury purchases, repos, and QT/QE actions via its Markets Desk. System Open Market Account (SOMA), the Fed’s extensive treasury and MBS portfolio, is managed here. Furthermore, the New York Fed houses significant gold reserves and possesses a permanent vote in the Federal Open Market Committee (FOMC), providing market intelligence and research functions. It closely links with Wall Street, making it a crucial hub for financial operations.
“The median of inflation expectations fell 0.2 points to 3.2% over a one-year horizon; three-year and five-year expectations remained at 3.0%.”
“Average unemployment expectations, the probability of the U.S. unemployment rate rising in a year, increased by 1.4 points to 42.5%. The probability of finding a new job if currently unemployed decreased by 0.6 points to 46.8%, while the chance of losing a job within the next twelve months fell by 0.9 points to 14.0%.”
“Perceptions of household financial conditions compared to a year ago have worsened, with more households reporting deteriorating financial conditions. Expectations for household finances one year ahead have also worsened, with more households anticipating further deterioration.”
Cryptocurrency Outlook for 2026
A week after announcing the end of its balance sheet reduction process, New York Fed President John Williams remarked, “the Fed might soon begin asset purchases to expand” during a central bank conference in Frankfurt. As previously highlighted, the New York Fed is integral to implementing the Fed’s QT and QE decisions. Connecting the dots, Williams becomes a critical figure whose insights warrant serious consideration.
During the Frankfurt conference, Williams announced that soon, the economy might necessitate moderate Treasury purchases by the Fed. The implications are clear: as QE accelerates in 2026, a potential surge in cryptocurrency values is on the horizon. Deutsche Bank anticipates the Fed initiating its QE process by the first quarter of next year. Staying informed through developing news remains crucial, and CryptoAppsy can significantly ease this task.
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