Friends, the market atmosphere is tense to the extreme now, and everyone's eyes are fixated on the results of the Federal Reserve's meeting a few hours later. In simple terms, the market is not worried about whether interest rates will be cut (that's almost a certainty), but rather fears that the Federal Reserve won't come up with real cash solutions to alleviate the increasingly obvious 'tight money' problem in the banking system.
What exactly is the market panicking about?
The anxiety points in the market this time are very specific, mainly stuck on 'liquidity'.
First of all, the Federal Reserve's 'pump' may be turned off, but the water hasn't returned yet. Everyone knows that the Federal Reserve has been withdrawing funds from the market over the past few years through 'balance sheet reduction' to combat inflation. At the end of last month, they finally decided to stop this action. But that's like turning off the faucet at home; it doesn't mean there is immediately sufficient water pressure in the pipes. The reserve levels for interbank lending are still worrying the market.
Secondly, the Federal Reserve is having internal disputes. This is the most troubling aspect. The current Federal Reserve is not as united as before; among the 12 voting officials, there are huge differences on what to do next. Some want to continue cutting interest rates to support the economy, while others strongly oppose it. Chairman Powell's words may not be as effective as before. A divided Federal Reserve could make indecisive decisions, which is what the market fears most—uncertainty.
The key question that Powell must answer tonight
Therefore, tonight, Powell and his colleagues have a very heavy task; simply announcing an interest rate cut may not be enough. The answers that the market truly wants to hear mainly focus on one point:
"What specific ways are you prepared to use to 'water' the market?"
Currently, the mainstream speculation on Wall Street is that the Federal Reserve may announce a plan: starting from January next year, it will purchase a certain amount of short-term government bonds each month. This is essentially a form of 'technical balance sheet expansion,' not intended to flood the market, but to inject liquidity into the financial system precisely and stabilize the situation. If this signal is clarified tonight, market tension could ease significantly.
What does it mean for ordinary people?
Whether you are trading stocks, buying funds, or concerned about the assets in your hands, tonight's results will create a ripple effect:
Is it a 'calming pill' or a 'shock bomb' for market sentiment: If the Federal Reserve presents a clear and strong liquidity support plan, the stock market and bond market are likely to rebound in response. But if they are vague or if internal conflicts become public, market volatility will immediately intensify.
Don't expect to return to the era of 'flooding the market' immediately: Even if there is a new bond-buying plan, it is fundamentally different from the type of quantitative easing used in 2020 to rescue the market. The Federal Reserve's stance will be very cautious, which means that a widespread surge in asset prices is unlikely to be repeated.
In the long run, volatility may become the norm: A Federal Reserve that is internally divided and whose decisions are influenced by more factors means that the predictability of future monetary policy will decline. For investors, large market swings may occur more frequently, necessitating better psychological resilience and risk management.
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