Non-farm, CPI data behind: Will the Fed's massive liquidity injection in 2026 be a surprise or a huge scam?

The Fed's latest dot plot has clearly laid out the situation: there will only be two rate cuts in 2026, one in 2027, and it won't be until 2028 that interest rates can return to normal levels. This means that the massive liquidity injection that the market has been hoping for is basically off the table; those who think the Fed will open the floodgates to save the market should dispel those thoughts early.

Another thing to remind everyone of is that many people have misunderstood the Fed's purchase of $400 billion in Treasury bonds. This is not quantitative easing, but a repurchase operation. The Fed is doing this not to flood the market with money, but because the banking system is tight on funds at the end of the year, to make an emergency rescue and fill some holes.

In simple terms, QE is about pouring water into the large pool that is the market, QT is about pulling water out, and RMP is simply about taking back the water that was splashed out and temporarily stored nearby, using it and then returning it.

So, don’t get overly excited just because you see the word 'purchase'. This is just a technical stabilization operation and is not a signal for a new round of easing. What can truly reflect the liquidity situation in the market is whether the supplementary leverage ratio has loosened, whether banks can expand their balance sheets, whether there are fiscal subsidies, and whether the overnight reverse repo rules will be adjusted.

There are two key data points to keep an eye on: one is the non-farm data to be released in December, especially the data from November, which might be relatively weak due to the government shutdown; the other is the consumer price index for January next year. If inflation doesn’t decrease as expected after the October rate cut, the Fed is highly likely to continue its tightening monetary policy.

In the end, the current market environment is not great, and expecting a massive liquidity injection in 2026? Given the current situation, that is purely self-delusion and completely unrealistic!

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