Key clarifications and core views on the Federal Reserve's 'easing'
Core facts: This month, the Federal Reserve released approximately $40 billion in liquidity to the market by purchasing government bonds. Powell explicitly defined in the press conference that 'this move is solely for reserve management' and is by no means traditional QE-style easing—traditional QE focuses on lowering long-term interest rates and stimulating the economy, while this operation focuses on short-term government bonds, aiming to fill the reserve gap in the banking system after balance sheet reduction (current reserves are close to the 'ample lower bound'), addressing the liquidity tension issue as repo market rates frequently break through the policy upper limit.
Qualitative essence: This is a form of operation that 'openly denies while covertly easing.' Although the Federal Reserve repeatedly emphasizes 'not changing the monetary policy stance,' in the context of three consecutive interest rate cuts, the liquidity injection is essentially to 'safeguard' the easing cycle—both to avoid fluctuations in the funding market that disrupt the effects of interest rate cuts and to reserve space for subsequent policies by supplementing reserves, which is a typical 'mild easing support' rather than 'flooding the market.'
Personal core view: This is absolutely the beginning of the Federal Reserve 'turning on the tap.' Looking back at history, the Federal Reserve's easing has never been 'straightforward': in 2019, it also initiated a monthly purchase of $60 billion under the guise of 'reserve management,' at which time it similarly denied it was QE, but ultimately evolved into six months of invisible easing, pushing the S&P 500 up 12% in three months; today's operation is strikingly similar to that year, first using 'technical adjustments' to test the market, employing ambiguous statements to reduce public pressure, while in reality, it has long been advancing according to the script of 'mild easing support.' Its consistent 'timidity' reflects the typical logic of gradual policy—never revealing the bottom line all at once, but the direction is always clear: since interest rate hikes have been ruled out of the benchmark expectations, liquidity easing will not stop at $40 billion, and it is highly likely that the operation scale will expand based on economic data; this wave of 'gentle easing' will only flow more steadily.
