$BTC $ETH On December 1, the Federal Reserve suddenly announced a halt to the reduction of its balance sheet. This decision means that the tightening cycle, which began in June 2022, has been put on pause.

Why the sudden stop? The reason is quite practical. US economic growth is slowing, and bank reserves are declining. If aggressive balance sheet reduction continues, the financial markets could face major trouble. More importantly, continued Fed selling of US Treasuries would directly raise the government’s borrowing costs—and the US fiscal deficit is already large enough.

The Fed’s situation is now quite delicate. Inflation is still hovering around 3%, which is some distance from the 2% target; but the job market has started to weaken. Halting the balance sheet reduction is like giving the economy a booster shot, stabilizing the liquidity baseline, but it doesn’t mean a full-scale return to easy money.

For the crypto market, short-term liquidity pressures will ease, which is positive for risk sentiment in major coins like Bitcoin and Ethereum. However, it’s worth noting that the Fed’s balance sheet is still about $2 trillion larger than pre-pandemic levels, and this excess liquidity could continue to drive asset price volatility. Coupled with the recent “data vacuum” caused by delays in the release of key US economic data, market turbulence is likely to remain unavoidable for some time.

This policy shift sends a clear signal: the Fed’s focus is moving from fighting inflation at all costs to balancing economic growth. The policy scales are adjusting, laying the groundwork for a possible future easing cycle. Investors need to stay calm amid volatility and prepare for changes in the new macro environment.