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While many investors remain fixated on the possibility of another Federal Reserve rate cut a factor that has helped push U.S. equities near record highs analysts suggest that interest rates may not actually be the biggest driver of the current bull market. Instead, the real force behind rising asset prices could be the Fed’s approach to managing its massive balance sheet and how much liquidity it decides to reintroduce into the financial system.

Balance Sheet Policies Take Center Stage

According to BlockBeats, several market strategists argue that quantitative tools such as Treasury bill purchases might have a more direct impact on market liquidity than incremental rate adjustments.

Bank of America’s global rates strategy team expects the Fed to announce a new liquidity-support plan this week. Their projection: the Fed could begin purchasing short-term Treasury bills (with maturities of one year or less) at a pace of $45 billion per month starting in January as part of its broader “reserve management operations.”

This would effectively inject fresh liquidity into the system, potentially supporting risk assets like stocks and cryptocurrencies.

Some Analysts Expect a Slower Approach

Not everyone anticipates an immediate or aggressive move.
Roger Hallam, global head of rates at Vanguard Fixed Income Group, believes the Fed may take more time before significantly ramping up balance sheet activity. His forecast calls for more moderate Treasury bill purchases around $15–20 billion per month beginning late in the first quarter or early in the second quarter of next year.

This more gradual approach reflects the view that the Fed might not need heavy intervention to maintain smooth market functioning.

Rate Cuts Still on the Table

Although liquidity operations may be the bigger story, interest rates aren’t being ignored.
Kelly from PineBridge expects the Fed to cut rates by 25 basis points on December 10, which would bring the policy rate down to 3.5%–3.75%. This move would inch the rate closer to the long-term “neutral rate” of roughly 3% a level seen as neither stimulating nor restricting economic activity.

What It Means for Markets

If the Fed pursues more aggressive balance sheet expansion, markets could see a fresh wave of liquidity that supports higher valuations for equities and other risk-on assets. Conversely, a slower pace could temper enthusiasm but still provide enough support to prevent disruptions.

Either way, analysts agree on one point: the Fed’s balance sheet decisions may quietly play a far bigger role in shaping 2025 market conditions than the headline rate cuts investors are expecting.
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