- An overly dovish pivot?
- More balance sheet expansion?
Jurrien Timmer, head of global macro at asset management behemoth Fidelity, believes that the U.S. Federal Reserve could potentially restart quantitative easing (QE) engines.
This is something that both Bitcoin and gold bulls have been anticipating.
Timmer believes that the Fed could facilitate another “melt-up” that would be similar to the dot-com bubble of the late 90s, which came after swift and aggressive easing driven by the stunning collapse of the Long-Term Capital Management (LTCM) hedge fund.
An overly dovish pivot?
Timmer does not rule out that the Fed could end up lowering interest rates beyond what is justified by economic indicators.
In such a case, the yield curve could “well bear-steepen,” meaning that long-term rates would rise at a faster pace compared to short-term rates. This would signal that the market is worried about future inflation.
Buying a lot of long-term bonds would be necessary for flattening the yield curve.
As reported by U.Today, the Fed refrained from cutting the benchmark rate earlier this week, but at least two rate cuts are expected to be implemented this year.
More balance sheet expansion?
As noted by Timmer, the Fed still has plenty of room for further balance sheet expansion. As of now, its balance sheet is 23% of the U.S. For comparison, the balance sheet of the central bank of Japan (BoJ) equals 117% of the country’s GDP.
“If another wave of fiscal dominance lies ahead once the Fed changes leadership in 2026, then I’m guessing we will get lower short rates and a Japan-style yield curve control from the Fed,” Timmer said on social media.
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