Rate Cuts Are Coming! What Did Powell Actually Say? The two main points / paradigm shifts from this rate cut meeting are as follows:

1. According to the latest December Fed dot plot, the Fed's average interest rate cut expectation for 2026 is only one cut, which is far below market expectations. So there might be little to no rate cuts throughout 2026.

2. After delivering the bearish news, the Fed also gave a sweetener. The Fed plans to purchase $40 billion worth of assets this month to expand its balance sheet, which is a form of monetary easing. Starting this month, this exceeded market expectations and is a positive signal.

However, the Fed emphasized that this is not quantitative easing because they are buying short-term U.S. Treasuries, aiming to address the current tight overnight lending market. This is not a continuous purchase; the Fed plans to stop buying at some point next year.

Overall, this Fed meeting sent a message: no rate cuts on the one hand, but also provided the market with a liquidity boost. It’s a pretty good outcome. The crypto and stock markets have started to rebound due to this unexpected liquidity injection. However, since the next meeting is unlikely to include rate cuts, whether this rebound will continue remains uncertain. Everyone should be cautious that the good news might be exhausted.