The Fed's move seems harsh, but it's actually not that harsh 😄📉
This time, the Fed lowered interest rates by 25bp as expected, but what's really interesting is its stance of being 'hawkish, yet not as hawkish as imagined.' #美联储降息
Although the statement emphasizes that inflation is still relatively high and employment is weakening, the dot plot only indicates one rate cut each for the next two years, which is clearly below the market's original expectation of two cuts. However, the new addition of 'considering further cuts in magnitude and timing' has set a high threshold for the rate cut space left for #鲍威尔 's remaining term—today might be his farewell rate cut.
Although they appear hawkish, the signals released by Powell are not that tough: employment may be overestimated, and it might have slightly turned negative; service inflation is still declining, and tariff disturbances will fade next year; the current interest rate position allows them to 'wait patiently,' and it is also clear that they are not considering rate hikes.
At the same time, the most easily overlooked yet crucial point is that the tightness of reserves is forcing the Fed to start purchasing short-term debt, buying $40 billion over the next 30 days, which is essentially a passive expansion of the balance sheet to stabilize liquidity.
Looking ahead, reserves need to return to over $3 trillion for liquidity to truly improve, but that will take time.
The real volatility may come from the upcoming data and events: non-farm payrolls, CPI, actions from the Bank of Japan, and more critically—the attitude of the new Fed chair. Once the nomination is finalized, the market's imagination for rate cuts may be reignited 🚀.
