“We’ve talked enough. It’s time to act.” At the breakfast on November 5, Trump issued a final ultimatum to his Republican colleagues. As of that day, the federal government shutdown had lasted 36 days—surpassing the 2018 record. Multiple attendees said Trump made it clear the shutdown was “starting to hurt market confidence,” a subtle contrast with the upbeat tone he had been projecting on social media. Senate Republican leader Mitch McConnell later pledged to “find a solution within the next 48 hours.” Notably, while stressing the negative effects of the shutdown, Trump also downplayed its longer-term impact: “As of last Friday, the stock market has hit multiple new highs over the past nine months… and it will hit new highs again.”
Trump blames shutdown for GOP election losses – POLITICO
Shutdown and the Countdown to a $1 Trillion Cash Release
Amid this political tug-of-war, the U.S. Treasury General Account (TGA) balance has quietly climbed to the $1 trillion threshold. JPMorgan’s head of asset strategy noted: “That’s effectively drained around $700 billion of liquidity from markets—tighter than a standard rate hike.”
Data over the past three months show the surge in TGA balances has already set off knock-on effects in money markets: the Secured Overnight Financing Rate (SOFR) spiked abnormally to 4.22%, and usage of the Federal Reserve’s Standing Repo Facility hit a record $50.35 billion.
Once the government reopens, the Treasury is expected to deploy funds on a large scale. Goldman Sachs chief economist Jan Hatzius estimates that “the first $300 billion could be injected into the real economy within four weeks—akin to a mid-sized round of QE.”
Unlike traditional quantitative easing, this kind of “fiscal QE” directly boosts bank reserves while lifting the velocity of money in the real economy. According to BofA Securities, every $100 billion reduction in the TGA balance can increase M2 money supply by roughly 0.6%.
Looking back at a similar episode in early 2021, after the Treasury drew down the TGA, the S&P 500 rose 12% over three months, while the small-cap Russell 2000 did even better with an 18% cumulative gain. Crypto benefited the most: Bitcoin surged more than 200% over the same period.
“But this time the scale is larger and the pace may be faster,” warned Mark Haefele, CIO of UBS Global Wealth Management. “Today’s TGA balance is more than twice the size of 2021. Markets should prepare for a liquidity wave.”
How Liquidity Release May Hit the Markets
Even before a formal agreement, fast-moving capital has started to reposition. In the final session on November 5, U.S. equities saw the Russell 2000 small-cap index close up 0.8% against the trend, while Bitcoin rebounded quickly to $102,000 after dipping below $100,000. “This is classic trading on expectations,” said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. “Liquidity-sensitive assets are the first to respond. Small caps, cryptocurrencies, and high-yield credit will likely be the initial beneficiaries.”
Deutsche Bank’s liquidity-transmission model suggests the funds will flow in stages:
Phase 1: Rapid repair in high-risk assets (cryptocurrencies, small caps, biotech).
Phase 2: Re-rating of cyclical sectors (industrials, materials, energy).
Phase 3: Banks benefit from ample reserves and improving net interest margins.
Importantly—and contrary to conventional wisdom—this round of liquidity could first favor non-AI tech segments. Analyst Wang Zhaoting at Guosen Securities explained: “Over the past three months, non-AI semiconductor stocks have sold off on liquidity withdrawal; their rebound elasticity may exceed that of AI names already trading at elevated levels.”
While liquidity release is a short-term positive for risk assets, large-scale fiscal outlays could rekindle inflation pressures. The bank’s model shows that every $100 billion TGA drawdown may lift the core PCE price index by about 0.15 percentage points.
“The Fed is walking a tightrope,” said a former Treasury official now at the Peterson Institute. “If inflation expectations de-anchor again, the Fed may be forced to end the rate-cut cycle early—or even resume hikes.”
