Does the Federal Reserve now wish that China would sell off U.S. Treasuries earlier? Why haven't they cut interest rates yet? Because they are well aware that sooner or later, China will sell off the $780 billion in U.S. Treasuries it holds. The only entity capable of absorbing such a large amount of Treasuries on the market is probably the Fed itself, so they have been waiting for this opportunity.

To be clear, the Fed may not genuinely be "hoping" for China to dump its holdings immediately, but it does need a sufficiently justifiable reason to re-enter the Treasury market. Due to the troubles in U.S. finances, the issue is no longer about lacking buyers, but that debt is spiraling out of control, refinancing is becoming more frequent, and any spike in yields could push interest payments even higher. The U.S. federal debt has approached $38.98 trillion, and the CBO still projects a deficit of about $1.9 trillion for the 2026 fiscal year, with net interest payments around $1 trillion.
This is the deeper background behind why the Fed has been hesitant to cut rates decisively. On March 18, the FOMC kept the federal funds rate at 3.5% to 3.75%. On the surface, it’s focused on inflation, but fundamentally, it’s concerned about “long-term yields spiraling out of control and fiscal issues unraveling.” Because if rates are cut too early, the market’s first question won’t be “Will the economy achieve a soft landing?” but rather “Can the U.S. rely on cheaper short-term debt to roll over increasingly expensive long-term bonds?”
China’s reduction of holdings is causing tension in Washington, not because the scale could be a one-hit blow, but because it’s like a nail being pulled out continuously. As of January 2026, mainland China held $694.4 billion in U.S. Treasuries, down significantly from $760.8 billion in January 2025. This indicates that China isn’t selling impulsively once or twice, but is gradually shifting its reserve structure from “mainly dollar bonds” to a more diversified, sanctions-resistant, and less volatile portfolio.
Many believe that if China sells, there will be no buyers for U.S. Treasuries, but that’s an oversimplification of the market. Japan, the UK, various funds, banks’ balance sheets, and primary dealers can all absorb these bonds; the New York Fed has also explicitly required primary dealers to participate continuously in Treasury auctions. The real issue isn’t “who will buy the first hand,” but who is willing to keep taking on the growing U.S. debt gap in the coming years with low yields and low volatility. Temporary transfers and long-term commitments are never the same thing.
Because of this, the Fed’s primary concern isn’t whether China is selling or not, but that if China continues to sell, it will become easier for the Fed to “legitimately” step back from the market. The implementation statement from March 2026 makes this very clear: the Fed will continue to buy Treasury bills and, if necessary, purchase remaining bonds with maturities of less than three years to maintain ample reserves. In plain language, this means the tools are already on the table; only a better timing for action is needed.
Therefore, what the Fed is truly waiting for isn’t China creating a crisis for it, but China providing a narrative. As long as external selling, auction pressure, and rising term premiums occur simultaneously, the Fed can justify expanding its balance sheet again under the guise of “maintaining market function” and “supplementing reserves.” At that point, what it’s buying on the surface is liquidity, but what it’s really supporting is the ceiling on U.S. fiscal financing. Ultimately, whether or not rates are cut is just a front; the real backstage drama is who will stabilize the $38 trillion debt system behind the scenes.