3. Traces of balance sheet tightening in monetary policy minutes

According to the "The Mechanics of Fed Balance Sheet Normalization" by the St. Louis Fed and the Federal Reserve Waller, changes in the description of the size of the balance sheet mainly focus on the Fed's use of terms such as "surplus", "ample", and "scarce". definition: Abundant=bank reserves/nominal GDP>10% Ample=bank reserve/nominal GDP<10% Scarce=bank reserves/nominal GDP<8% The Federal Reserve still maintains the position that the end of the so-called balance sheet reduction requires reaching "something above the sample level", which means that before entering the sample state, it will begin to observe whether QT should be stopped (the current bank reserve ratio/nominal GDP is between 10% and 11%). This something is generally considered to represent the stability of the financial system - when the financial system becomes unstable due to continuous balance sheet reduction, it will consider whether to stop. Therefore, the fluctuation range of SOFR at the end of each quarter will be very important. At the same time, balance sheet reduction is also a tool for adjusting long-term interest rates by 10 years. The current Treasury Department has continuously expressed its determination to reduce interest rates by 10 years, and the Federal Reserve should pay special attention to SOFR fluctuations based on the lessons learned in 2019. How fast and when to stop shrinking the balance sheet depends on "something", that is, how much instability is reflected by the SOFR fluctuations at the end of the quarter. At the liquidity level, it is temporarily considered that the end of March and the end of June are two important observation time points, and now the probability of the end of June is slightly higher than that of the end of March. 【 4. Conclusion 】 At present, the main contradiction in the secondary market is "tariff uncertainty". There is no systemic risk in the current financial market, but rather the impact of tariff policies on risk appetite (interest rate expectations, strength of the US dollar). The current weight of economic data is not as high as tariffs. In the past two weeks, there have been frequent cases where economic data is good but tariff news is released at the end of Friday, causing the cryptocurrency industry to frequently close its doors. The overall macro background is not weak, with a foundation of risk on in the first half of the year. However, the uncertainty of tariffs has brought about a temporary risk off, resulting in an overall situation where economic data releases have increased while tariff news releases have decreased. The most typical feature is that with the decline of 10y and dxy, the market is not at risk but has become widely volatile due to tariffs, and the cryptocurrency market, as an interest rate sensitive asset, has been hit the hardest. When the valuation is at a high level, the sensitivity of financial assets to interest rates and liquidity will be higher. If measured by QE, the US stock market, as a representative of US dollar financial assets, has returned to its mid-2021 level - this does not necessarily mean a decline, but it means that the price sensitivity of financial assets will be higher when uncertainty occurs. I haven't been doing much trading lately because trading in 2025 is "short rather than long", but I'm not very good at short-term trading, so I've been watching many short-term trading bloggers learn from them recently. If TGA Drawdown drives the cryptocurrency market to rise in mid to late February, it is advisable to engage in short-term trading, such as trading on weekdays but closing positions or hedging by the end of Friday to cope with the risk of tariff news over the weekend. If the micro level K-line breaks through with a large volume and forms a right-hand trend market, it is inclined to close positions and maintain no positions before the end of TGA Drawdown to avoid the impact of tariffs in the second half of the year.