On October 29, Quinn Thompson, CIO of Lekker Capital, posted on X, asserting that Jerome Powell’s messaging following the FOMC was more about political maneuvering than about macroeconomic uncertainty — with significant implications for crypto liquidity.
Interpreting Powell’s FOMC Remarks
Thompson expressed: “Powell seems to be engaging in political maneuvers and posturing concerning the December wording, possibly signaling to the administration to reopen the government. It almost seemed like a warning that if there’s no data (due to an ongoing government shutdown), then a December cut would be off the table, causing the market to react with uncertainty.” He pointed out how unusual it was for Powell to comment directly on market expectations: “The immediate response made sense given that it is quite rare for Powell to speak on market pricing so specifically, as he usually refrains from doing so and emphasizes that he won’t comment on market pricing.”
Thompson’s main takeaway is that Powell deviated from his usual approach. Typically, Powell avoids any language that could imply the Fed is endorsing market forward pricing. Yet, after the Federal Reserve lowered its policy rate by 25 basis points to a target range of 3.75%–4.00%, Powell stated clearly that “a further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it.”
He stressed that there are “strongly divergent views” within the Committee regarding the pace and extent of further easing. The markets promptly recalibrated. Treasury yields climbed, and the likelihood of a December cut dropped sharply from near certainty to around a fifty-fifty chance, leading risk assets to respond correspondingly. This included crypto: bitcoin and large-cap crypto assets initially dipped alongside equities as market participants interpreted the comment as a hawkish surprise rather than positioning.
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Thompson argues that this was not about indicating a hawkish stance but rather about signaling conditionality. He interprets Powell’s statements as a message to the White House and Congress: if you reopen the government and restore the flow of economic data, the Fed is poised to cut rates again in December; if the shutdown continues and data remains inaccessible, Powell can officially claim he cannot justify further accommodation. Powell himself highlighted that the central bank has been operating “in the absence of key government data” because the shutdown, which began on October 1, has obstructed standard reporting on labor, inflation, and economic activity. Thompson views this position as an implicit warning shot.
In his words, “What you take from that is up to you, but I believe the market may have been caught off guard by what I perceive to be a flawed Fed reaction function in relation to the government shutdown. There’s no scenario where the economy is stronger because of the shutdown, and if they are pointing out ongoing downside labor market risks, it’s challenging to justify deviating from their September dot plot path.”
For crypto, the underlying message matters: Thompson asserts that Powell’s comments did not signal a tightening of financial conditions as the year ends. They were leverage in a political negotiation, not a policy cap on liquidity.
That argument is operational, not just rhetorical. Thompson contends the Fed’s stated rationale does not truly align with its concerns. Powell’s justification for the October 29 cut emphasized labor market softening and downside employment risks. The official FOMC statement indicated a “shift in the balance of risks” toward weaker employment, noted that job gains have slowed, and recognized that unemployment has risen.
Moreover, Powell noted that while inflation remains above target, it is no longer accelerating as it did earlier in the year, which is why some members advocated for quicker easing. This combination — weakening labor, softening inflation, and rate cuts — has historically been favorable for crypto as it suggests easier dollar liquidity and reduced borrowing costs without an outright crisis.
On the balance sheet, Thompson highlights an already documented development in Fed and press statements that hasn’t been fully reflected in risk assets: “Just a week or two ago, the market did not anticipate QT ending this soon, and now Powell has indicated that the next step in this process will entail returning to balance sheet growth. These developments are clearly liquidity-positive, although the MBS reinvestment and upcoming purchases will primarily focus on bills.”
Implications for Crypto
In straightforward terms, the Fed didn’t just reduce rates by 25 bps; it also announced it would halt quantitative tightening on December 1. This indicates that the Fed will sustain its Treasury and mortgage holdings rather than allowing them to passively decline. Instead, it plans to reinvest maturing Treasuries and redirect mortgage-backed securities principal paydowns into Treasury bills.
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For crypto investors, this is the crucial point. When the Fed pauses the reduction of its balance sheet and begins reinvesting in bills, it effectively injects additional dollar liquidity into the economy, even if they refrain from labeling it as quantitative easing. This liquidity has historically flowed into areas of the market that are most responsive to additional cash and duration scarcity — tech stocks, high beta credit, and crypto. Thompson suggests that beneath Powell’s cautious rhetoric, the Fed has signaled the beginning of a new phase of liquidity for crypto.
This is a significant liquidity turning point that could be overlooked if the only narrative one absorbs is “December cut not guaranteed.” Ending QT at this juncture wasn’t a widely-held view just two weeks ago. This is also why Thompson dismisses the notion that Powell’s tone is inherently bearish for risk.
He concludes, “Overall, I still find the December cut quite probable.” He then outlines the sequence of macro developments he anticipates once the government reopens: “In the end, I believe they will reopen the government in the coming weeks, leading to data that will likely show declining inflation over the next few months and a continued weakening labor market. Additionally, Trump is negotiating deals that could lower tariffs, which would also be favorable in the eyes of the FOMC.” The takeaway for crypto investors is that once economic data resumes, it will support continued easing rather than impede it.
The final part of Thompson’s post shifts the focus from mechanics to governance. He points to Powell’s impending term expiration. “Powell’s Chair term concludes in six months, and his successor will be identified even sooner, creating a shadow Fed chair scenario. It is evident to everyone and the market that the new chair will adopt a supportive stance toward the administration’s agenda. Given all of the above, it is challenging for me to articulate a bearish case for risk assets based on liquidity conditions as all indicators suggest continued support for the markets.” That is the essential takeaway for crypto.
Thompson argues that the Fed’s institutional bias, as it nears the succession window, leans toward maintaining and managing liquidity conditions to prevent market disruptions. If this bias persists, it is inherently bullish for crypto because it indicates a policy floor for dollar liquidity at the critical moment the Fed is already preparing to stop the balance sheet runoff and re-expand via Treasury bills.
Currently, the total crypto market cap is estimated at $3.73 trillion.
Featured image created with DALL.E, chart from TradingView.com
