I. Core Message Overview

The Federal Reserve has made another big move, cutting interest rates by 25 basis points, bringing the benchmark rate down to 3.5% - 3.75%. At the same time, the key rates for overnight reverse repos, standing repos, and reserves have also been lowered, directly reducing market financing costs.

In addition, starting from December 12, 400 billion dollars of short-term treasury bonds will be purchased within 30 days, and the high purchasing scale will be maintained in the following months, but the pace will slow significantly thereafter.

Regarding economic expectations, the Federal Reserve has raised its GDP growth and inflation expectations for 2025 - 2028. Inflation is slowly approaching the 2% target, and the unemployment rate can remain stable. However, it should be noted that the economic outlook still has uncertainties.

There are also policy disagreements; among the 19 officials, 6 opposed the interest rate cut in December, 12 supported a 25 basis point cut, and 1 thought a 50 basis point cut would be more appropriate. The dot plot hasn't changed, and there is still considerable debate about the future pace of interest rate cuts.

II. Key Point: What exactly is the treasury bond purchase (clarifying "not directly entering the stock and cryptocurrency markets")

Purpose of Purchase (official explanation + simple explanation)

Officials say that buying treasury bonds is to fill the reserve gap in the banking system, ease short-term liquidity tensions, stabilize money market rates, and allow monetary policy to transmit better. This is not quantitative easing (QE) to stimulate the economy.

In simpler terms, the Federal Reserve had previously contracted its balance sheet, pulling a lot of money out of the market, leaving banks with insufficient reserves. Additionally, the frequent issuance of short-term US treasury bonds has caused short-term financing costs to skyrocket, and there may even be a "funding shortage" by year-end. This bond purchase is to accurately replenish liquidity in the financial system, giving banks enough cash to manage turnover, and not directly flooding the stock market or cryptocurrency market with cash.

Funds flow & the possibility of entering the stock market and cryptocurrency market

In terms of fund flows, the Federal Reserve's money used to buy bonds is directly given to banks, brokers, and mutual funds that sell treasury bonds. After these institutions receive the money, they mainly use it to replenish their liquidity, meet funding turnover needs, or allocate some low-risk assets, and will not invest it in high-risk areas.

What about the probability of these funds directly entering the stock and cryptocurrency markets? It's almost zero; it's completely impossible for them to enter directly. This bond purchase is just a "liquidity management operation," which is different from QE. QE focuses on buying long-term assets to push up risk assets. These institutions will not use the money meant for "filling the gap" to speculate in stocks or cryptocurrencies.

However, indirect stimulation is still possible, with a probability of about 50% - 60%. The overall market liquidity has eased, financing costs have decreased, and some funds that were originally sitting on low-yield assets may want to find a higher-yielding place, potentially flowing indirectly into the stock market and cryptocurrencies. However, this process is not direct, and the certainty is not high.

III. Medium to Long-Term Impact: Mildly Positive, Key is Liquidity

Regarding the US stock market: there is support in the medium to long term, but it won't directly drive up prices.

With interest rate cuts and bond purchases, the market's liquidity environment has improved, corporate financing costs have decreased, and profit expectations can benefit as well. Moreover, some incremental funds may indirectly flow into the stock market, providing some support for technology stocks and growth stocks.

However, there are also risk points. With such significant policy disagreements, if inflation falls short of expectations, interest rate cuts might be paused. Moreover, buying bonds does not directly inject blood into the stock market; if corporate performance does not keep up, the upward momentum will weaken.

Regarding cryptocurrencies: short-term sentiment can be boosted, but the medium to long term depends on whether liquidity can be sustained.

Cryptocurrencies are particularly sensitive to liquidity easing. With the implementation of this policy, short-term sentiment will definitely improve. However, since the funds do not directly enter, the increase may not match that of a pure QE period.

There are also significant risks; cryptocurrencies lack substantial value support. If the bond purchase scale is reduced in the future, interest rate cuts do not meet expectations, or if regulation becomes stricter, the risk of a correction could be much greater than that of the US stock market. Only if liquidity easing continues can there be a possibility of consistently having funds to support the market.

Regarding the Federal Reserve's future interest rate cuts: There is a high probability of continued cuts in 2026, but the pace will be slow.

The dot plot hasn't changed, indicating that the Federal Reserve's attitude is quite cautious and will not aggressively cut rates. However, economic growth is still moderate, and inflation is gradually approaching the 2% target. It is highly probable that interest rates will continue to be cut in 2026, with market expectations of a decrease of about 100 basis points for the entire year.

However, there are also constraints; inflation is still higher than the 2% target, and some officials are concerned that cutting interest rates too quickly may lead to a rebound in inflation. Moreover, due to policy disagreements, interest rate cuts will definitely be made in "small steps and slow walks."

IV. Official Summary

In this FOMC meeting, the Federal Reserve introduced a combination of "interest rate cuts + bond purchases," lowering the benchmark interest rate by 25 basis points to 3.5% - 3.75%. They also started buying short-term treasury bonds to replenish the liquidity of the banking system. Economic expectations have been slightly raised from before, and inflation expectations are gradually approaching the 2% target. This bond purchase is essentially a liquidity management operation, not QE; the money is given directly to financial institutions to fill the reserve gap and will not directly enter the stock market or the cryptocurrency market.

From a medium to long-term perspective, the tone of policy easing is clear, which will indirectly benefit the US stock market and cryptocurrencies by improving the overall liquidity environment, but the intensity will certainly be milder than direct liquidity injections. The future process of interest rate cuts will be influenced by the pace of inflation decline and policy disagreements, and will proceed cautiously and slowly. The overall market environment has eased, but whether risk assets can rise depends more on the indirect spillover of liquidity and their own fundamentals, rather than being directly driven by bond purchase funds.

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