For the third time in a row! The Federal Reserve cut interest rates as scheduled by 25 basis points, but internal disagreements intensified, and they will purchase $40 billion in bonds each month.

On Wednesday, the Federal Reserve announced its third consecutive interest rate cut this year, while maintaining the outlook of only one more cut in 2026, highlighting the increasing divergence among decision-makers on the future policy path. The Federal Open Market Committee (FOMC) approved a 25 basis point cut to the federal funds rate to a range of 3.5%-3.75% by a vote of 9-3, and adjusted its statement to suggest greater uncertainty about the timing of future rate cuts. Chairman Powell stated after the meeting that the current policy adjustment would help stabilize the weakening labor market while maintaining sufficient tightness to suppress inflation. He said, "With the fading impact of tariffs, this further policy normalization should support employment and bring inflation back to the 2% target." When asked if a further rate cut by the Federal Reserve was inevitable, Powell did not promise, but emphasized that no officials were considering raising rates as the baseline scenario. The latest meeting highlighted the debate among decision-makers on how to balance between "soft employment" and "resilient inflation". This meeting also saw three officials dissenting on the rate decision for the first time since 2019. Chicago Fed President Evans and Kansas City Fed President Schmid believed rates should remain unchanged, while Governor Waller, appointed by Trump in September, once again advocated for a one-time 50 basis points cut. After the announcement, the S&P 500 rose, while bond yields and the dollar retreated, but there was no significant change in the expected rate path for 2026. At the same time, the Federal Reserve announced a key liquidity management measure. Starting from December 12, it will purchase $400 billion worth of Treasury securities every month to rebuild the significantly reduced bank reserve balances during the balance sheet reduction period. The statement pointed out that with the progress of the asset balance reduction (QT), reserves had fallen to the "lower limit of the ample range", so it was necessary to maintain ample reserve supply in the future through the purchase of short-term Treasury bills. The New York Fed's Open Market Operations Desk expects this purchase plan to continue at a high pace in the coming months to address the substantial seasonal increase in non-reserve liabilities in April next year. Afterwards, the pace of operations may significantly slow down. The Fed emphasized that this action is purely for reserve management and does not mean a restart of quantitative easing (QE); unlike the policy nature of lowering long-term rates and stimulating the economy during the crisis period, this round of operations mainly targets the stabilizing demand of the money market. Boosted by the dual news of rate cuts and reserve operations, US Treasury bonds strengthened, with yields across the curve falling, led by the most rate-sensitive 2-year Treasury bonds dropping by about 3 to 5 basis points. In the weeks leading up to the meeting, internal divisions within the FOMC had already surfaced. Some officials were concerned that inflation remained stubborn, casting doubt on the need for consecutive rate cuts, while others emphasized that the labor market was cooling and further policy relaxation was necessary. The latest data showed that the unemployment rate rose to 4.4% in September, higher than the 4.1% in June; core inflation year-on-year was at 2.8%, still above the target. The government shutdown caused key economic data to be delayed, adding to policy uncertainty. Despite the policy differences, the market had already anticipated this rate cut, in part because New York Fed President Williams explicitly supported a year-end rate cut in his speech on November 21. The latest economic forecasts show that officials expect only one rate cut each in 2026 and 2027, but internal views are severely divided, with seven officials leaning towards keeping rates unchanged throughout 2026, while eight officials support at least two rate cuts. Forecasts for economic growth have been slightly revised upwards, with growth expected to reach 2.3% in 2026, higher than the 1.8% in September; inflation is expected to fall to 2.4% next year. Powell stated that without any major new tariffs, commodity inflation is expected to peak in the first quarter of next year. In addition, external political factors have also been a focus amid policy discussions. President Trump recently revealed that he had decided on the next Federal Reserve chair, with the announcement expected early next year. The White House's frequent pressure on the pace of Federal Reserve rate cuts has raised concerns about the central bank's independence facing risks. Chris Grisanti, Chief Market Strategist at New York's MAI Capital Management, said, "The initial reaction is unsurprising, with rates cut as expected. But as you look ahead, you see a lot of uncertainty. When we look from today's rate cut to 2026, the tailwind effects of rate cuts will no longer be as reliable. That could become a problem. Furthermore, when you further deduce itgiven the Fed's revised language emphasizing the uncertainty about the 'magnitude and timing' of future rate cuts, the Fed is actually sending a signal to the market: don't take rate cuts for granted. In my view, this means we will only see more rate cuts in a significant economic downturn. As a stock investor, I hope to not see any more rate cuts in 2026, because that would mean the economy is weakening. I would rather have a stable economy than more rate cuts."