Tonight is destined to be an insomniac night of overlapping market events—rate cut window opens, Christmas market warms up, Japan's rate hike dynamics land, plus the $45 billion monthly stimulus plan for 2026 is on the agenda, with multiple variables colliding.
The Federal Reserve is set to cut rates by 25 basis points tonight, which is basically a done deal. However, this 'easing' feels strange: the bond market not only didn't rise but instead fell against the trend, as if the global market is ringing the death knell for the Fed's 'independence.'
A performance of 'hawkish rate cuts'
The script has long shown signs: 'Rate cuts are possible, but don’t expect an increase in easing.'
This will be the third consecutive rate cut. On the surface, it seems like a sweet treat for the market. However, core inflation is still hovering at high levels, and there are ongoing disputes within the Federal Reserve. Powell is likely to signal 'hawkishness while cutting rates', indicating that this round of easing is nearing its end. Ultimately, it's about prematurely exhausting future policy space, giving the economy an expensive 'preventive injection.'
The real nuclear bomb: Trust collapse
More critical than the rate cut itself is that the market is starting not to 'trust' the Federal Reserve.
On the eve of the rate cut, the 10-year US Treasury yield has unusually surged, which itself is a jarring alarm. The underlying logic is clear: Trump's proposed 'litmus test for the Fed chairman'—only appoint candidates willing to cut rates immediately, and the top contender, Hassett, is a clearly defined 'hardline dove.'
The world's largest hedge fund, Man Group, has long warned: If the market sees the new chairman as a political pawn, the bond market will likely vote through selling, violently pushing up long-term interest rates. At that point, the only option left may be to restart quantitative easing, forcibly suppressing interest rate fluctuations through printing money.
The UK in 2022 serves as a cautionary tale: After the government lost its credibility, government bonds faced massive sell-offs, and borrowing costs permanently rose above those of other countries, a painful lesson.
What does this mean for assets?
- In the short term: The stock market is likely to celebrate a rate cut, but be wary of Powell's hawkish remarks suddenly turning the tide, and the market could change face in an instant.
- In the long term: Shorting the dollar may become a mainstream trend; the bond market has clearly turned into a powder keg, with yields potentially breaking 5%; while Bitcoin and gold may ride the wave of declining monetary credit and the potential implementation of QE, leading to the strongest upward narrative.
Tonight, what we witness may not be the end of a cycle, but the beginning of a larger-scale chaos regarding monetary credit. Everyone buckle up for the market's violent fluctuations!～#美联储重启降息步伐 $BTC
