Bitcoin’s New Best Friend: The Fed’s QE Machines 🤖💰

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Oh hello, dear diary. Today, Jurrien Timmer, the head of global macro at the gargantuan Fidelity, has a little theory that might just turn your world upside down. He thinks the U.S. Federal Reserve might just fire up those quantitative easing (QE) engines again. Can you believe it?!

If the Fed lowers rates beyond what deems justified by the Taylor Rule, the yield curve could well bear-steepen unless the Fed engages in yield curve control.

That would restart the QE engines, which is something that both gold and Bitcoin appear to have been anticipating. The…
— Jurrien Timmer (@TimmerFidelity) August 1, 2025

According to Timmer, this could lead to another “melt-up” reminiscent of the dot-com bubble days, back when we were all wearing flannel and listening to Britney Spears. This was, of course, after the dramatic collapse of the Long-Term Capital Management (LTCM) hedge fund, which was like the financial equivalent of a really bad breakup. 💔

An overly dovish pivot?

Timmer doesn’t rule out the possibility that the Fed might lower interest rates more than what’s justified by economic indicators. In other words, they might just decide to throw caution to the wind and go all in. 🎉

If this happens, the yield curve could “bear-steepen,” which means long-term rates would rise faster than short-term rates. It’s like the market is saying, “Hey, we’re a bit worried about inflation, but let’s party like it’s 1999!” 🕺🕺

To flatten the yield curve, the Fed would need to buy a lot of long-term bonds. Think of it as buying a bunch of lottery tickets in the hopes that one will pay off big time. 🍀

U.Today reported that the Fed held off on cutting the benchmark rate this week, but at least two rate cuts are expected this year. So, keep your fingers crossed and your eyes on the horizon! 🌈

More balance sheet expansion?

Timmer also points out that the Fed still has plenty of room for further balance sheet expansion. Right now, their balance sheet is 23% of the U.S. GDP. For context, the Bank of Japan’s balance sheet is a whopping 117% of Japan’s GDP. That’s like comparing a small cup of coffee to a vat of espresso. ☕️ Espresso, anyone?

“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 tweeted. It’s like the Fed is planning a grand exit strategy, but only time will tell if it’s a graceful bow or a clumsy stumble. 🤞

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2025-08-02 01:20