On December 10, the Federal Reserve finalized its third interest rate cut of the year with a 9-3 vote, lowering the federal funds rate by 25 basis points to a range of 3.50%-3.75%. It also announced a significant liquidity tool — starting from December 12, a $40 billion short-term Treasury bill purchase plan will be initiated within 30 days, coupled with measures to remove the cap on repurchase operations. This marks the upgrade of the global easing cycle from mere interest rate adjustments to comprehensive liquidity injections, officially starting a restructuring of asset pricing that affects stocks, bonds, currencies, and gold.
The introduction of the $40 billion bond purchase plan is based on the Federal Reserve's accurate prediction and quick response to the liquidity crisis in the money market. Since the initiation of quantitative tightening (QT) in 2022, the Federal Reserve has cumulatively reduced its balance sheet by $2.4 trillion, and the reserve levels in the banking system have continuously fallen from a state of 'abundance' to one of 'scarcity'. Recently, key overnight financing rates such as SOFR have repeatedly breached the upper limit of the policy interest rate. The risk of a funding shortage at the end of the year has intensified, even threatening the effectiveness of the Federal Funds Rate control. The Federal Reserve clearly stated in its policy announcement that the core objective of the bond purchase is to maintain sufficient reserve supply in the banking system, 'watering' the money market through the purchase of short-term Treasury bills to prevent a repeat of the repo market collapse similar to that of 2019. Although the Federal Reserve emphasizes that this move is a 'Reserve Management Purchase (RMP)', distinct from the economic stimulus of quantitative easing (QE), the massive amount of funds injected each month has still been pointed out by institutions like UBS and Morgan Stanley as 'invisible QE', with its actual liquidity easing effects being no different from quantitative easing.
Once the policy mix is implemented, the global market reacts strongly. The three major U.S. stock indexes soar, with the Dow Jones rising 497.46 points in a single day, and the S&P 500 index approaching its historical peak. AI computing power, semiconductors, and other growth sectors become the core of capital's pursuit, reminiscent of the strong performance of U.S. stocks rising 12% over three months after a similar liquidity injection in 2019. The precious metals market celebrates simultaneously, with gold benefiting from declining real interest rates and rising inflation expectations. Former New York Fed expert Mark Cabana predicts its price could hit $4500-5000 per ounce, while silver, with its dual attributes of industrial and precious metal, is expected to outperform gold. In the foreign exchange market, the U.S. dollar index enters a mild depreciation phase, emerging market currencies usher in an appreciation window, and the RMB to USD exchange rate is expected to return to the 6.8-7.0 range, bringing valuation recovery momentum to emerging market assets.
From a deeper logical perspective, this 'interest rate cut + bond purchase' combination highlights a significant shift in the Fed's policy logic: through a collaborative model of 'interest rate policy setting direction + structural tools filling gaps', it both responds to weak signals in the labor market with interest rate cuts and addresses structural liquidity shortages with bond purchases, achieving a dynamic balance of the 'dual mandate'. It is worth noting that behind the policy lies a transitional consideration of the Fed leadership's succession—Powell's term will end in May 2026, and potential successors have publicly expressed support for further interest rate cuts. This early initiation of bond purchases stabilizes the market and lays a foundation for the continuity of subsequent policies. However, the risks behind the easing dividend cannot be ignored: under the massive scale of $38 trillion in U.S. national debt, bond purchases somewhat 'support' government borrowing, blurring the boundaries between monetary and fiscal policy; a massive influx of liquidity may exacerbate asset bubbles, leading to a disconnection between financial asset valuations and the real economy; while the easing spillover of the dollar as a global reserve currency will also bring dual pressures of imported inflation and currency depreciation to emerging markets.
For A-shares, the Fed's easing constitutes important external benefits, but the market's evolution will present a progressive characteristic from 'external heat and internal cold' to 'internal and external resonance'. In the short term, foreign capital inflows will directly support the valuation of core assets, with net inflows of funds in the Shanghai and Shenzhen Stock Connect expected to continue to rise. Sectors such as semiconductors and communication equipment have already seen early capital positioning, while the financial and consumer sectors will also benefit from declining interest rates and the RMB appreciation dividend. However, whether the year-end market can be initiated still depends on the synergy of domestic growth-stabilizing policies—if subsequent policies release positive signals, it will resonate with the Fed's easing, pushing the market to break through key integer levels; if domestic policies fall short of expectations, the market is likely to maintain a pattern of fluctuating upwards, with structural opportunities still concentrated in high-growth sectors.
This liquidity feast led by the Fed essentially aims to use new policy tools to resolve old structural contradictions. In the short term, it has successfully alleviated liquidity pressure in the money market, injecting a strong stimulus into global financial markets; but in the long term, deep-seated issues such as debt expansion, asset bubbles, and blurred policy boundaries remain unresolved. Global investors need to seize differentiated opportunities amid liquidity dividends while being wary of potential risks after the easing tide recedes. In the coming months, the adjustment pace of the Fed's bond purchase scale, the realization of the interest rate cut path in 2026, and the policy responses of major economies will become core variables affecting global asset allocation.
