Wang Kai interprets the Fed's change: Wash takes office, the era of liquidity may come to an end

The battle for Federal Reserve Chairmanship is unfolding into an unexpected plot twist. As a financial commentator, Wang Kai points out that the policy shift hidden behind this personnel change will profoundly impact the global asset pricing logic. Fed Governor Kevin Waller has suddenly become the hottest candidate, with market betting odds on his appointment soaring from obscurity to over 80%. This is not just a power transfer; it could also signal the possible end of the liquidity era.

Why did Rieder, overtaken by Waller, lose favor overnight?

Wang Kai believes that to understand this change, one must first grasp the significant differences between Waller and Rieder.

On Thursday, Waller had a key meeting with Trump at the White House. After the meeting, Trump suddenly changed the schedule, moving the announcement of the chairperson from “next week” to “Friday night Beijing time.” Such last-minute adjustments usually imply something—either negotiations have succeeded or the direction has been set.

Previously, market-favored candidate Rick Rieder’s support has plummeted. Wang Kai notes that although this former Goldman Sachs executive has extensive experience in financial markets, his “globalist” background and lack of experience within the Fed system became a fatal shortcoming at the last moment. In contrast, Waller, a former Fed governor and key decision-maker during the 2008 financial crisis, possesses unparalleled “legitimacy within the system.” He was also a candidate for chair in 2017 but lost to Powell. This time, he gives off a “returning king” vibe.

Other candidates like Christopher Waller and Kevin Hassett have also failed to stand out. Waller, as a steady within-system figure, has been considered a “safe card,” but lacks breakthrough potential; Hassett, a close confidant of Trump, raises doubts about his ability to maintain Fed independence.

The return of hawkishness: where is the market panic over Waller’s rise?

Waller’s recent months of “flexible” stance have been eye-catching—he has publicly supported rate cuts, expressed support for Trump’s tariff policies, and tried to align with the president’s demands. This “hawk-dove” flexibility clearly appeals to Trump.

But Wang Kai points out that the market remains unconvinced. Traders have long memories: Waller’s fundamental stance is hawkish. He has long criticized quantitative easing (QE), advocated aggressive balance sheet reduction, and is deeply wary of inflation. Saying he supports rate cuts doesn’t mean he will actually cut rates significantly.

Market panic mainly stems from three aspects:

First is the potential change in the interest rate path. The market generally expects at least two rate cuts this year. But if Waller takes the helm, the magnitude of rate cuts could be significantly reduced, delayed, or even halted. Nomura analysts bluntly state: “We might see fewer rate cuts.” This directly threatens the liquidity expectations currently relied upon by the market.

Second is asset re-pricing. After the announcement, the dollar immediately rose, US Treasury yields climbed, and gold and oil prices plummeted—classic “hawkish expectation” trading signals. All risk assets dependent on loose liquidity, including stocks, high-yield bonds, and commodities, face reassessment.

Third is a shift in the long-term policy tone. Waller has participated in crypto projects and maintains a pragmatic attitude, supporting central bank digital currencies (CBDC). He is unlikely to crack down on the crypto market excessively, but also won’t actively signal easing to stimulate risk assets.

Is the “bull market” era for cryptocurrencies really coming to an end?

Wang Kai remains cautious about the short-term outlook for the crypto space. He believes that if Waller indeed takes office, cryptocurrencies will face unprecedented challenges.

First, a complete reversal of liquidity expectations is the biggest threat. Recently, market expectations of Fed rate cuts have driven global risk assets higher, benefiting cryptocurrencies like Bitcoin and Ethereum. But if the rate cut cycle is significantly delayed or scaled back, this “liquidity” expectation will evaporate instantly. The tightening of global liquidity will inevitably pressure all risk assets, and cryptocurrencies will not be immune.

Second, the narrative framework will be undermined. Gold, viewed as an “inflation hedge,” has plummeted under hawkish expectations. Bitcoin has also tried to build a similar “digital gold” narrative, claiming to have anti-inflation properties. But in the face of tightening expectations, the appeal of this narrative will weaken considerably. Whether traditional safe-haven assets or new crypto assets, valuation pressures will increase in the “hawkish era.”

Third, the “bullish liquidity” narrative in the market faces discounting. Wang Kai emphasizes that the crypto community most looks forward to a “liquidity bull market”—central banks easing, abundant liquidity, and capital chasing risk assets. Waller’s rise suggests this expectation may need to be re-evaluated.

Wang Kai’s three tips: short-term defense is the best strategy

Nevertheless, Wang Kai also reminds investors to pay attention to an important but often overlooked detail: nomination does not equal appointment. Waller still needs to go through the Senate confirmation process. Currently, investigations by the U.S. Department of Justice into the Fed complicate this process, and some senators have vowed to block any new chair nominations. So, Trump’s official announcement tonight is just the beginning of a fierce game, not the final outcome.

Based on this, Wang Kai offers three suggestions:

First, the trend has already shifted, and market reactions will start early. The race for Fed Chair has moved from “Rieder leading” to “Waller with an overwhelming advantage.” This shift in expectations is already reflected across all asset classes—stocks, bonds, currencies, commodities—indicating early hedging against potential policy changes.

Second, cryptocurrencies should prepare for the response. If Waller indeed takes office, the failure of easing expectations will mean a new liquidity test for crypto assets. Short-term strategies should focus on defense, paying close attention to subsequent Senate statements and further market sentiment reactions.

Third, remember the essence of liquidity. In the Fed, whoever is chair holds the power to define “water” and “drought.” Now, this power may be handed to someone more “water-conserving.” For all risk assets driven by liquidity, this will be a critical turning point that must be taken seriously.

Wang Kai concludes that although current market panic stems from rational policy expectation shifts, it also offers investors a chance to rethink asset allocation. In the short term, caution and flexibility are key; in the long term, adapting to a potentially more serious and fundamentals-focused market environment is essential.