Analysts: The Federal Reserve May Be Turning Dovish

On the 10th local time, the Federal Reserve concluded its two-day monetary policy meeting and announced a 25 basis point cut in the target range for the federal funds rate to between 3.50% and 3.75%. Additionally, the market is focused on the Federal Reserve's announcement of plans to expand its balance sheet starting this month.

In specific actions, the Federal Reserve stated that it would begin purchasing $40 billion of short-term U.S. Treasury securities starting this Friday local time, and it is expected that the purchase scale will remain high over the next few months before gradually decreasing. Some analysts interpret this move as a form of “implicit” interest rate reduction. Within the Federal Reserve, hawks typically focus more on inflation and tend to maintain high interest rates, while doves are more concerned with supporting the labor market and hope to lower interest rates. The market's focus has now shifted to the Federal Reserve's next policy direction. Although the dot plot shows that the Federal Reserve predicts it will only cut rates once next year, consistent with predictions from three months ago, the market is betting that the rate cut will be larger next year.

CME Federal Funds futures show that the market believes there is about a 68% probability that the Federal Reserve will cut rates two times or more in 2026. Some analysts interpret the economic outlook forecast released by the Federal Reserve as an indication that the current Federal Reserve may be turning dovish.