Markets are recalibrating their expectations for U.S. monetary policy as the Federal Reserve navigates a leadership transition and shifting economic conditions. According to economist Lyn Alden, the central bank may be moving toward a more moderate and predictable phase of balance-sheet expansion rather than the aggressive interventions seen in past cycles.
Alden suggests the Fed’s future approach could involve expanding its balance sheet at a pace that roughly tracks nominal GDP growth or the size of total bank assets. Instead of large, sudden injections of liquidity, the strategy would likely involve slower, steady increases over time. That kind of policy, she argues, could still support asset prices, but in a more gradual and controlled way.
The discussion comes as markets weigh the implications of President Donald Trump’s nomination of Kevin Warsh to succeed Jerome Powell. Warsh is widely viewed as more hawkish on interest rates, and his potential leadership has added another layer of uncertainty to the policy outlook. With Powell’s term nearing its end, investors are increasingly focused on how the next Fed chair might shape the pace and direction of monetary expansion.
One of the key signals many analysts continue to watch is the money supply. The Fed’s M2 measure has been trending higher, indicating a gradual expansion of the monetary base. Historically, rising money supply has tended to support risk assets, including equities and cryptocurrencies, as looser financial conditions often translate into higher asset valuations.
At the same time, expectations around interest rates remain fluid. Recent market data suggests the probability of near-term rate cuts has declined, reflecting uncertainty around the Fed’s next steps and the broader confirmation process for new leadership. Policymakers have also acknowledged that there is no risk-free path forward, as they balance inflation concerns with economic growth.
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