December Interest Rate Cut: The Tug of War Between Market Sentiment and Policy Games!
When the Federal Reserve announced the halt of balance sheet reduction starting in December, the market was instantly ignited. This seemingly opened a “pressure relief valve” for medium to long-term funding pressure, but Powell's remark that “the interest rate cut in December is not a done deal” was like a bucket of cold water, causing the market's priced probability of a rate cut to plummet from 90% to 70%. At the same time, tomorrow's meeting between the two major leaders added fuel to the market's short-term sentiment.
In the short term, Powell's statement indeed left the market anxious, but this is just the surface. A deeper analysis shows that the Federal Reserve's halt of balance sheet reduction and the leaders' meeting are actually two significant benefits for the market. From the deep logic of capital flow and market expectations, the high probability trend of interest rate cuts has not been shaken. The current 70% pricing is more like a “misjudgment” of market sentiment under short-term adverse conditions.
Looking forward to December, how will the market unfold? Will the realization of the interest rate cut bring about the strong market trend that is expected? This game of interest rate cuts and market sentiment may just be beginning.
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