Under the clear sign of interest rate cuts, the Federal Reserve's real bottom line is a reluctant compromise in the face of economic cracks and political pressure.
The Federal Reserve's interest rate cut chime rang on schedule in the early morning. The adjustment of 25 basis points seems calm, yet it is like a stone thrown into a lake, stirring up ripples.
The official statement is standard, but upon careful savoring of the meeting details, you will find that the Federal Reserve's decision-making balance is being torn by three forces: weak economic data, increasing internal divisions, and pressure from the White House.
The market superficially celebrates the rate cut, but in reality, it is focusing on the short-term Treasury bond purchase program simultaneously launched by the Federal Reserve—approximately $40 billion of liquidity injection each month.
Although officials strive to distinguish it from quantitative easing, traders vote with their feet: U.S. stocks are rising, gold is holding above $4,200, and Bitcoin is surging back to around $94,000—a carnival of 'seeming QE but not QE' has already begun.
1 A façade of proper behavior: A routine operation of cutting rates by 25 basis points.
This interest rate cut lowers the target range for the federal funds rate to 3.50%-3.75%, marking the Federal Reserve's third rate cut this year and the sixth since the rate cut cycle began in September 2024.
On the surface, the Federal Reserve's decisions seem well-founded. The statement indicates that the U.S. economy is still expanding moderately, but job growth has slowed, and the unemployment rate rose from 4.1% in June to 4.4% in September.
At the same time, although inflation levels have risen since the beginning of the year, they remain significantly above the long-term target of 2%.
This combination of 'weak employment + stubborn inflation' has put the Federal Reserve in a dilemma.
Powell's statements at the press conference were unusually cautious; he described current interest rates as 'within the neutral rate range' and emphasized that 'policy is not on a predetermined path.'
This cautious tone sharply contrasts with the market's expectations for aggressive easing and also hints at internal resistance within the Federal Reserve to further rate cuts.
2 Darkly hidden: The government bond purchase plan is the real powder keg.
Although the Federal Reserve attempts to downplay its impact, the monthly plan to purchase approximately $40 billion in short-term government bonds undoubtedly sends a strong liquidity signal to the market. This operation cleverly bypasses the label of 'quantitative easing' while achieving a similar effect—injecting funds into the financial system.
Historical experience shows that once a central bank opens the asset purchase channel, it often produces a multiplier effect that far exceeds expectations. The key issue facing the current U.S. economy is no longer the level of interest rates, but the liquidity squeeze brought about by credit contraction. This move by the Federal Reserve appears mild but effectively opens the tap for the financial market.
Gold reacted most directly, rising above the $4,200 mark, indicating that investors' concerns about the credibility of the dollar are increasing. Bitcoin's return to around $94,000 further highlights the strange resonance between safe-haven assets and risk assets—the market is worried about economic decline while also longing for a liquidity feast.
3 Cracks cannot be concealed: The decision-making crisis behind the three dissenting votes.
The most shocking aspect of this meeting is the publicization of internal rifts. Among the 12 voting members, three cast dissenting votes, setting a record for the highest number of dissenters since 2019.
These three dissenting votes represent polarized positions: Governor Stephen Milan advocates a 50 basis point cut, while Chicago Fed President Goolsbee and Kansas City Fed President Smith advocate maintaining rates.
This divergence is not a simple battle between doves and hawks but reflects fundamental disagreements within the Federal Reserve regarding economic assessments.
Powell admitted: 'This is a rare situation where our dual goals are conflicting simultaneously.'
This statement is understated but reveals the Federal Reserve's difficult balance between stabilizing prices and achieving full employment, its two core missions.
On one hand, inflation pressures have not been completely eliminated; on the other hand, signs of cooling in the job market are evident. This dilemma makes every decision by the Federal Reserve feel like walking a tightrope.
4 Political pressure: Trump's shadow looms over the Federal Reserve.
Trump's statements following the interest rate cut were highly aggressive: 'The rate cut is too small; it could be larger.'
This is not the first time he has publicly criticized the Federal Reserve's monetary policy. Since resuming the presidency in January of this year, Trump has repeatedly accused Powell of being too slow to cut rates and even threatened to remove him from office.
More noteworthy is that Trump has begun to intervene in the personnel layout of the Federal Reserve. On that day, he met with one of the candidates for Federal Reserve Chairman, former Fed Governor Kevin Warsh, and expressed that he wants someone who is 'honest on interest rate issues,' hoping that rates can be 'much lower.'
The traditional firewall between the White House and the national central bank is eroding. Although Milan, the Federal Reserve governor nominated by Trump, has only one vote, he has repeatedly called for larger interest rate cuts.
This is highly consistent with the White House's expectations, raising doubts about whether the Federal Reserve's independence can be maintained.
5 The mystery of the dot plot: The future space for interest rate cuts is greatly compressed.
The latest dot plot released by the Federal Reserve indicates that policymakers' median expectation is that there will only be a further 25 basis point cut by 2026.
This signal is far from what the market expects in terms of multiple rate cuts, suggesting that the current cycle of rate cuts may be nearing its end.
The dot plot also shows that the median forecast for the federal funds rate in 2025 and 2026 remains unchanged at 3.4% and 3.1%, respectively.
Compared with the current interest rate range of 3.5%-3.75%, the future space for rate cuts is only 25-50 basis points, far below market expectations.
Powell emphasized: 'The federal funds rate is currently within a broad estimate range of neutral rates; we are in a good position to wait and observe how the economic situation develops.'
This wait-and-see attitude sharply contrasts with Trump’s demand for significant rate cuts and also suggests that the Federal Reserve may enter a period of policy calm in the coming months.
6 Where will the market go: Liquidity-driven dynamics will become the dominant logic.
For investors, it is crucial to recognize that future market trends will be driven more by liquidity than by fundamentals. The Federal Reserve's bond purchase plan will provide ample dollar liquidity to the market, creating an environment conducive to the performance of risk assets, but it may also exacerbate market volatility.
Among various assets, cryptocurrencies may become the biggest beneficiaries. Digital assets like Bitcoin benefit not only from liquidity injections but also attract safe-haven funds due to their relative independence from the traditional financial system. Gold's strong performance has already demonstrated the market's concerns about the credibility of fiat currency, while Bitcoin offers another 'decentralized' value storage option.
However, risks cannot be ignored. The divisions within the Federal Reserve imply that future policy paths are full of uncertainty, and the release of every economic data point could lead to different interpretations by officials, causing violent fluctuations in market expectations.
The Federal Reserve's dot plot has already hinted that there may be only one rate cut in 2026.
Moreover, Trump's keen interest in the selection of the Federal Reserve Chairman adds further uncertainty to future policies.
Powell seems to have begun setting 'roadblocks' for policy to avoid making the Federal Reserve overly passive before his departure.
The market has already made a choice—no matter what the Federal Reserve says, funds are first betting on a liquidity feast. After all, when the central bank plays both the rate cut and asset purchase cards, smart money knows which direction to follow.
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