💣 Interest rate cut variables arise again! Internal divisions within the Federal Reserve exposed
🔥 Key points: Stop balance sheet reduction on December 1, interest rate cut meeting on the 8th
🔥 The probability of a 25 basis point rate cut in December is 71%
· The probability of a cumulative 25 basis point rate cut by January next year is 58%
· The probability of a cumulative 50 basis point rate cut is also 22%
Federal Reserve officials have made intensive statements over the weekend, and their positions are clearly divided——
The “cautious faction” representative Collins emphasized that inflation risks still exist, and the current policy of “mild restriction” is necessary to ensure inflation declines. She bluntly expressed a reserved attitude towards the interest rate cut in December, pointing out that the September employment data is “mixed,” and the divergence in policy views is “not surprising.”
On the other side, the “dovish faction” New York Fed Chair Williams believes: The labor market is cooling, and interest rates should continue to be cut to approach the “neutral policy level.” He assesses that the risk of employment decline is rising, while the risk of inflation rise is easing.
🎯 How does the market view it?
Currently, CME's “FedWatch” shows:
· The probability of a 25 basis point rate cut in December is 71%
· The probability of a cumulative 25 basis point rate cut by January next year is 58%
· The probability of a cumulative 50 basis point rate cut is also 22%
📊 Liquidity: Pressure easing, but vigilance is still needed
Previously impacted by balance sheet reduction and Treasury TGA fund replenishment, the U.S. money market was once tense. However, after passing the end of October pressure, multiple repo rate indicators have significantly declined since November. The frequency and scale of financial institutions' use of the Fed's SRF liquidity tool have also decreased.
If the money market encounters extreme situations similar to the “repo crisis” in September 2019 again in the future, the Federal Reserve may activate reverse repo and other tools for intervention. But at present, liquidity pressure is generally controllable.
🔁 Key point: Stop balance sheet reduction on December 1
The Federal Reserve has confirmed that it will officially end balance sheet reduction on December 1 and plans to reinvest MBS maturity proceeds into short-term Treasury bonds to smoothly transition to a new phase of “maintaining a basically stable balance sheet.”
⚠️ Risk warning: Economic data fluctuations, changes in Trump’s policies, geopolitical conflicts, etc. may rewrite the interest rate cut path at any time.
