In addition to the Federal Reserve's interest rate meeting at 3 AM Beijing time this Thursday, attention should also be paid to whether the Federal Reserve, which just ended its balance sheet reduction process on December 1, will immediately start expanding its balance sheet.

Currently, amidst the context where the Federal Reserve has reduced its balance sheet, which peaked at around $9 trillion during the pandemic, by about $2.5 trillion, the U.S. capital market still maintains a favorable posture. After pressures emerged in the overnight financing market in recent weeks, the Federal Reserve ended its balance sheet reduction process on December 1—this move could be significant, as the Federal Reserve has clearly stated its intention to avoid repeating the repo crisis of 2019.

But as we have introduced multiple times last month, signs of liquidity tightening have recently intensified in the money market, which reached $12 trillion and provides key support for Wall Street's daily financing. This has led to an increasing number of market participants calling for the Federal Reserve to take further action to ease the pressure...

Roberto Perli, an official at the New York Fed responsible for overseeing the central bank's securities portfolio, stated in mid-last month that the recent rise in financing costs indicates that the reserves in the banking system are no longer ample, and the Federal Reserve can purchase assets 'without having to wait too long', echoing similar comments from his boss—New York Fed President Williams. At that time, Williams also reiterated that as part of the technical measures to maintain control over short-term interest rates, the timing for the Federal Reserve to resume bond purchases is getting closer.

Therefore, many teams predict that the Federal Reserve may start expanding its balance sheet as early as this week.

Forecasts from various parties:

The Bank of America Global Rates Strategy Team stated last weekend that it expects the Federal Reserve to announce the launch of the 'Reserve Management Purchases' program this week—purchasing short-term Treasury bills with a maturity of one year or less at a monthly scale of $45 billion, starting from January next year.

Other institutions believe that the relevant process may be slower, and that the Federal Reserve's intervention to maintain the smooth operation of the market may be smaller.

Roger Hallam, the global rates head of Vanguard's fixed income department, stated, 'From a macro perspective, the Federal Reserve will naturally start purchasing Treasury bills next year as part of reverse management operations. Because as the economy's demand for reserves expands, the Federal Reserve will inevitably meet this demand.'

Hallam expects that the Federal Reserve will start a Treasury bond purchase program at the end of the first quarter or the beginning of the second quarter, with a monthly purchase scale of $15 billion to $20 billion.