On April 21 (Eastern Time), Kevin Walsh, the nominee for Federal Reserve Chair, attended the Senate Banking Committee’s confirmation hearing and, for the first time, systematically outlined his monetary policy stance. This two-hour hearing drew intense attention from global financial markets due to Walsh’s proposal of a dual-track approach: "balance sheet reduction plus rate cuts." During the hearing, Walsh made it clear that the Fed’s balance sheet should be significantly reduced, while also advocating for interest rate cuts to support the real economy.
Key Milestones from Nomination to Hearing
Walsh’s evolving policy stance is itself noteworthy. Early in his career, he was widely considered a "hawk" in monetary policy, often critical of the Fed’s large-scale balance sheet operations. However, around the time of his nomination by President Trump, his policy position shifted significantly—from a traditionally hardline stance to supporting, and even advocating, rate cuts, while maintaining the logic that balance sheet reduction creates room for easing.
Key Timeline:
- January 2026: Walsh is nominated by President Trump as the next candidate for Fed Chair.
- April 20, 2026 (pre-hearing): Market expectations for Fed rate cuts in 2026 total just 0.4, reflecting a generally cautious outlook.
- April 21, 2026: Senate Banking Committee holds the confirmation hearing, where Walsh systematically presents his policy views for the first time.
- April 21, 2026 (intra-day): US equities pull back; 10-year Treasury yields rise to 4.3%.
- April 22, 2026 (post-hearing): According to CME "FedWatch" data, the probability of the Fed holding rates steady in April is 100%, while the chance of a cumulative 25 basis point cut by June is just 1.7%.
- April 24, 2026: Latest CME data shows a 99% probability of no rate change in April, with the probability of a June rate cut inching up to 2.6%.
- April 28–29, 2026: FOMC policy meeting convenes.
- May 15, 2026: Powell’s term officially ends.
The Contradictory Tension of Dual Policy
Walsh’s "balance sheet reduction plus rate cuts" strategy appears internally consistent on the surface, but it hides deeper contradictions—quantitative tightening withdraws liquidity from the financial system and pushes up long-term rates, while rate cuts aim to lower short-term rates to stimulate the real economy. These actions move in opposite directions, creating complex cross-currents for asset prices.
Fed Balance Sheet and Market Liquidity
Currently, the Fed’s balance sheet stands at about $6.7 trillion. Walsh advocates for a significant reduction. His core logic: an oversized balance sheet disproportionately benefits Wall Street and forces short-term rates to remain elevated, while shrinking the balance sheet actually helps lower rates and improve inflation.
The following table compares market impacts during several Fed balance sheet reduction cycles:
| Balance Sheet Reduction Cycle | Period | BTC Price Performance | 10-Year Treasury Yield Range |
|---|---|---|---|
| 2017–2019 Quantitative Tightening | Oct 2017 – Sep 2019 | After a 2017 bull run, BTC saw a sharp correction in 2018 | 2.0% to 3.2% |
| Post-QT in 2019 | Sep 2019 – Feb 2020 | Fell then rebounded; BTC recovered from ~$7,500 to ~$10,000 | 1.5% to 1.9% |
| 2022 Quantitative Tightening | Jun 2022 – present | BTC fell from ~$30,000 to ~$15,500 (end 2022) | 2.8% to 4.2% |
Historical data shows that crypto assets generally face liquidity contraction pressure during balance sheet reduction periods. After QT ended in late 2019, BTC rebounded to around $10,000 from December 2019 to February 2020, confirming the suppressive effect of QT on risk assets. In 2022, aggressive Fed rate hikes combined with QT led to a roughly 65% drawdown in BTC.
Treasury Yields and Crypto Assets
The reaction of Treasury yields on the day of the hearing is notable: 10-year yields rose to 4.3%. Earlier, in late March 2026, the 10-year yield nearly hit a yearly high of 4.5%, while Bitcoin dropped below $68,000.
Rising Treasury yields increase the opportunity cost of holding non-yielding assets like Bitcoin, while tighter financial conditions dampen risk appetite. However, it’s important to distinguish between two scenarios—if rising yields are driven by economic growth expectations, stocks and crypto typically strengthen alongside. But if yields rise due to central bank bond sales pushing up real rates (as in Walsh’s QT scenario), it becomes a headwind for risk assets.
Rate Cuts and Risk Appetite
Rate cuts also have a two-sided impact on crypto assets. In theory, lower rates reduce funding costs and boost risk asset valuations. After rates were cut to 3.50%–3.75% in December 2025, falling short-term rates did channel some capital into high-risk digital assets. However, after the 2019 rate cuts, BTC initially fell before rebounding, indicating that rate cuts can also trigger "sell-the-news" pullbacks once the positive news is priced in.
Dissecting Market Sentiment: Hawk vs. Dove and Divergence
Following Walsh’s hearing, market institutions were clearly divided, with debates centering on a "hawkish appearance, dovish core."
Mainstream Institutional Views
Some analysts interpret Walsh’s comments as "hawkish on the surface, but with dovish potential." This suggests that while the direction of future rate cuts is set, the pace and scale remain uncertain. DBS Hong Kong’s economics research team noted that Walsh’s stance—"positioning for nomination" but vague on specific policy tools—could slow the actual rollout of related policies.
Some market participants believe Walsh’s insistence on Fed independence and rejection of presidential intervention eased global concerns over politicized monetary policy, providing support for both the dollar and Treasuries.
Other analysts argue that Walsh’s overall tone is hawkish, which could temper overly optimistic market bets on rapid rate cuts, exerting short-term pressure on US equities. Guotai Haitong, meanwhile, takes a "neutral" view, suggesting Walsh’s real challenge will be persuading FOMC members to recognize the trend of declining inflation, thereby paving the way for rate cuts.
Actual Market Pricing
As of April 24, 2026, CME "FedWatch" data shows a 99% probability of rates holding steady in April, and just a 2.6% chance of a rate cut by June. The market is almost entirely unprepared for near-term rate cuts.
This indicates that, despite Walsh’s dovish leanings at the hearing, derivatives market pricing for rate cuts remains extremely restrained—possibly because concerns over liquidity tightening from QT are offsetting the positive expectations from rate cuts, or because the market remains cautious about the inflation outlook.
Industry Impact Analysis: Transmission from Macro Policy to Crypto Assets
To assess the impact of Walsh’s policy framework on crypto assets, it’s necessary to analyze three channels: liquidity, valuation, and market sentiment.
First, the Liquidity Channel: QT’s Direct Headwind
QT means the Fed reduces its bond holdings, withdrawing liquidity from the financial system. This process directly tightens dollar liquidity, which is the core driver of inflows into the crypto market. By shrinking its balance sheet, the Fed pulls dollar reserves out of the global financial system, reducing exchange inflows. Crypto markets, which rely on excess liquidity, tend to feel this contraction sooner than other asset classes.
In Q1 2026, some analysts flagged that Bitcoin was facing a "triple liquidity squeeze"—ongoing QT, changes in Treasury General Account management, and the impact of the debt ceiling. If Walsh accelerates QT, M2 money supply growth could slow further or even turn negative, putting even greater liquidity pressure on risk assets like Bitcoin.
Second, the Valuation Channel: Rate Cut Boost vs. QT Drag
Rate cuts lower the risk-free rate, theoretically boosting valuations for risk assets like Bitcoin. However, under Walsh’s framework, rate cuts do not amount to "net easing"—the positive effects of rate cuts may be offset by the liquidity tightening from QT.
After the 2019 rate cuts and end of QT, BTC first fell then rebounded. This suggests QT’s impact on crypto assets often precedes the benefits of rate cuts.
Third, Market Sentiment and Structural Channel: Treasuries and Crypto Interplay
Recent data shows a stronger negative correlation between Bitcoin and Treasury yields. Large-scale central bank Treasury sales that push up real rates directly impact the crypto market. However, if central banks are selling Treasuries to defend their own currencies, the resulting dollar liquidity could temporarily support the crypto market, creating a "fall then rebound" dynamic.
With Walsh’s QT and persistently high Treasury supply, long-term rates may face sustained upward pressure, forming a key macro headwind for crypto market valuations in this cycle.
Conclusion
Walsh’s dual-track "balance sheet reduction plus rate cuts" proposal represents a significant reconfiguration of the Fed’s traditional policy framework. QT brings far-reaching liquidity tightening that affects long-term US rates, while rate cuts aim to support the real economy by lowering short-term rates. In theory, these can coexist, but in practice, their effects on asset pricing often offset each other.
