The Federal Reserve faces its most significant internal division in recent years as Chair Jerome Powell navigates a deeply split FOMC ahead of a key policy meeting. While a 25-basis-point rate cut is widely expected, the challenge lies in post-meeting communication. Powell is likely to adopt a "hawkish cut" strategy—lowering rates while avoiding strong signals about future easing, particularly for January. He will emphasize data dependency and may signal that rates are approaching neutral to reassure hawkish members concerned about persistent inflation. The decision is complicated by a government shutdown delaying key economic data and external political pressure. Regardless of the outcome, high uncertainty and market volatility are expected to persist, with future policy moves contingent on labor market conditions and inflation data.

<html><head></head><body>As Federal Reserve policymakers become increasingly divided between hawkish and dovish stances, Chairman Powell faces a daunting coordination task at this week's central bank meeting. Although the market widely expects the Fed to cut interest rates again, the real challenge lies in post-decision policy communication. Powell must carefully balance internal opposing views and leave flexible room for future policy paths.<h3>A Deeply Divided Committee</h3>Currently, the level of divergence within the Federal Open Market Committee (FOMC) is considered the most severe in Powell's eight-year tenure. This split is directly reflected in the distribution of voting rights: among the 12 voting members, five have expressed opposition or skepticism toward further rate cuts.Since 2019, no FOMC meeting has seen three or more dissenting votes, and since 1990, this has occurred only nine times. Therefore, the market is highly focused on whether this meeting will witness a high number of dissenting votes, which in itself reflects the complexity and uncertainty of policy-making.This profound divergence stems from different interpretations of the contradictory state of the U.S. economy.One side (dovish) is more concerned about the weakening signals in the job market. For example, New York Fed President Williams believes that the downside risks in the labor market have increased, while upward inflationary pressures have eased, thus advocating that "there is still room for further rate cuts in the near term."The other side (hawkish) is worried about the stickiness of inflation. Officials like Boston Fed President Collins emphasize that progress on inflation has stalled, and the current "moderately restrictive" monetary policy level is necessary to ensure inflation returns to the 2% target, thus urging caution on further rate cuts. These differing emphases on the contradictory economic data make it difficult for the committee to form a unified opinion.<h3>Communication Strategy of a "Hawkish Cut"</h3>Faced with such internal divisions, market analysis suggests that Powell is most likely to adopt a communication strategy known as a "hawkish cut." This means the Fed may approve a 25-basis-point rate cut at the December meeting, but Powell will strive to avoid sending strong signals about a future easing cycle in his post-meeting press conference, particularly by setting a high bar for another rate cut in January. Analysts at Bank of America note that Powell may attempt to balance the expected rate cut action with hawkish rhetoric.Specifically, the communication strategy may focus on two aspects:First, emphasizing that future policy decisions will strictly depend on data, especially upcoming employment and inflation reports,暗示ing that this rate cut is not the start of a prolonged easing cycle.Second, signaling that interest rates are approaching the level of the "neutral rate." The neutral rate is the level at which interest rates neither stimulate nor restrain the economy. By暗示ing that the policy stance may soon shift from restrictive to neutral, Powell can attempt to reassure hawkish members that the Fed is not heading toward excessive easing.However, executing this communication strategy poses significant challenges. Powell must placate internal hawkish voices while avoiding being too dovish, lest the market interpret it as a pause in the easing cycle, triggering an inappropriate tightening of financial conditions. He must find a delicate balance between these conflicting objectives.<h3>Decision-Making Amid Data Gaps and Political Pressure</h3>A unique dilemma for the Fed's current decision-making is the absence of key economic data. Due to the ongoing U.S. federal government shutdown, a series of important economic reports, including the October jobs report, have been delayed. This forces policymakers to make judgments in a "data vacuum" with incomplete information, akin to "driving in heavy fog" and having to slow down. The lack of data not only increases the risk of policy misjudgment but also makes it difficult for Powell to rely on clear data support when explaining decisions, forcing him to depend more on overall economic outlook assessments and private-sector alternative data.Meanwhile, political pressure is also a factor that cannot be ignored. President Trump has repeatedly publicly pressured the Fed to cut rates and is considering nominees for the next Fed chair. This external pressure, with its potential impact on the Fed's monetary policy independence, significantly raises the political and economic stakes of this meeting. Powell has previously stated that the Fed's policy decisions are "based on data, not politics," but adhering to this principle in such a complex context requires immense determination and wisdom.<h3>Future Path: Uncertainty as the New Normal</h3>Regardless of the outcome of the December meeting, the Fed's future policy path is fraught with uncertainty. A gap exists between market expectations and the Fed's official guidance: futures market pricing currently indicates expectations for further rate cuts after January, while some Fed officials prefer a wait-and-see approach after this cut. Powell is likely to preserve flexibility for future actions. One possible communication approach is to emphasize that the need for further rate cuts will depend on whether the labor market shows signs of "further significant softening." This means that if subsequent economic data, particularly employment data, deteriorates significantly, the Fed may still act. Conversely, if inflation data unexpectedly rebounds strongly, it could support the hawkish view, leading to rates remaining higher for longer.Furthermore, academic debates about the level of the "neutral rate"预示 long-term complexity in policy-making. FOMC members' estimates of the neutral rate vary significantly, ranging from 2.6% to 3.9%. This fundamental divergence means that even after short-term data-dependent decisions, reaching a consensus on the ultimate level to which rates should be cut remains difficult within the Fed, ensuring that the future policy trajectory will not be smooth.In summary, Chairman Powell's core task at this meeting is to seek a fragile balance within a severely divided committee, using a "hawkish cut" strategy to placate internal and external parties, while striving to maintain the Fed's policy independence and credibility under the dual constraints of data gaps and political pressure. Regardless of the outcome, high uncertainty and market volatility are likely to become the new normal for the foreseeable future.</body></html>

The Fed Faces Its Biggest Internal Divergence in Recent Years! Has Powell Stopped Being 'Hawkish' This Time?

marsbit

Former New York Fed expert Mark Cabana predicts that, in addition to the widely anticipated 25 basis point rate cut, Fed Chair Powell will announce a $45 billion per month Treasury bill purchase program at the upcoming December FOMC meeting. This plan, set to begin in January 2026, aims to inject liquidity and prevent a further surge in repo market rates. Cabana warns that markets are underestimating the scale of the Fed's balance sheet actions, as money market rates indicate bank reserves are no longer "abundant." The move is seen as necessary to address liquidity shortages caused by previous quantitative tightening. UBS also forecasts a similar $40 billion monthly purchase program. The policy shift comes amid a critical leadership transition at the Fed, with Powell's term ending and expectations rising for Kevin Hassett to potentially succeed him.

<html><head></head><body>Author: Zhang Yaqi
Source: Wall Street News
As the Federal Reserve's December 10th policy meeting approaches, the market is not only focused on the widely anticipated interest rate cut but also on a potential major balance sheet expansion plan, according to senior Wall Street strategists.
Recently, Mark Cabana, a former New York Fed repo expert and now a rates strategist at Bank of America, predicted that, in addition to the widely expected 25 basis point rate cut, Fed Chair Jerome Powell will announce a plan next Wednesday to purchase $45 billion per month in Treasury bills (T-bills). This bond-buying operation is set to be implemented in January 2026, aiming to inject liquidity into the system and prevent a further surge in repo market rates.
Cabana warned in a report that while the interest rate market has reacted tepidly to the rate cut, investors are generally "underestimating" the scale of the Fed's actions regarding its balance sheet. He pointed out that current money market rates indicate that reserves in the banking system are no longer "abundant," and the Fed must restart purchases of securities to fill the liquidity gap. Meanwhile, UBS's trading desk has made a similar prediction, expecting the Fed to begin purchasing about $40 billion in Treasury bills per month starting in early 2026 to maintain stability in the short-term interest rate market.
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This potential policy adjustment comes at a critical time of impending leadership transition at the Fed. With Powell's term nearing its end and market expectations rising that Kevin Hassett might succeed him as Fed Chair, next week's meeting is not only about short-term liquidity but will also set the tone for the monetary policy path in the coming year.
<h2>Former New York Fed Expert Predicts: $45 Billion Monthly Purchases</h2>
Although market consensus is locked in on a 25 basis point rate cut next week, Mark Cabana believes the real variable lies in balance sheet policy. In his weekly report titled "Hasset-Backed Securities," he noted that the size of the RMP (Reserve Management Purchases) the Fed is likely to announce could be as high as $45 billion per month, a prediction that significantly exceeds current general market expectations.
Cabana detailed the composition of this figure: the Fed needs to purchase at least $20 billion monthly to cope with the natural growth of its liabilities, plus an additional $25 billion to reverse the reserve drain caused by previous "excessive quantitative tightening." He expects purchases of this magnitude to continue for at least 6 months. This announcement is expected to be included in the Fed's implementation note, with detailed operation sizes and frequency published on the New York Fed's website, focusing purchases on the Treasury bill market.
As previously reported by Wall Street News, since the balance sheet peaked at nearly $9 trillion in 2022, the Fed's quantitative tightening (QT) policy has reduced its size by approximately $2.4 trillion, effectively draining liquidity from the financial system. However, even with QT halted, signs of funding stress remain evident.
The clearest signals come from the repo market. As the short-term financing hub of the financial system, overnight reference rates in the repo market, such as the Secured Overnight Financing Rate (SOFR) and the Tri-Party General Collateral Rate (TGCR), have frequently and sharply breached the upper limit of the Fed's policy rate corridor in recent months. This indicates that reserve levels in the banking system are sliding from once "abundant" to "ample," with a risk of further moving towards "scarce." Given the systemic importance of the repo market, this situation is considered intolerable for the Fed in the long term, as it could weaken the transmission efficiency of monetary policy.
Against this backdrop, recent comments from Fed officials have also hinted at the urgency for action. New York Fed President John Williams stated that "we expect to reach ample reserve levels before long," while Dallas Fed President Lorie Logan noted that "I expect it will be appropriate to resume balance sheet growth before long." Cabana interprets "before long" as referring to the December FOMC meeting.
<h2>Auxiliary Tool Aimed at Smoothing Year-End Volatility</h2>
In addition to the long-term purchase plan, to address the impending year-end funding volatility, Bank of America also expects the Fed to announce term repo operations lasting 1-2 weeks. Cabana believes the pricing for these operations could be set at par with or 5 basis points above the Standing Repo Facility (SRF) rate, aiming to trim tail risks in the year-end funding market.
Regarding administered rates, although clients have inquired about the possibility of lowering the Interest on Reserve Balances (IORB), Cabana believes that simply cutting IORB "solves nothing," as banks generally prefer to hold higher cash buffers following the Silicon Valley Bank (SVB) collapse. He thinks it's more likely that the IORB and SRF rates could be cut synchronously by 5 basis points, but this is not the base case scenario.
Another important context for this meeting is the upcoming personnel changes at the Fed. The market currently views Kevin Hassett as a strong contender for the next Fed Chair. Cabana pointed out that once the new chair is confirmed, the market will price the medium-term policy path more based on guidance from the new appointee.
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UBS also agrees with the view that balance sheet expansion is returning. UBS's sales and trading desk noted that by purchasing Treasury bills, the Fed can shorten the duration of its assets, thereby better matching the average duration of the Treasury market. Whether this operation is called RMP or quantitative easing (QE), its ultimate goal is clear: through direct liquidity injection, to ensure the financial market can maintain smooth operation during this critical period of political and economic transition.
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Former New York Fed Expert: Powell May Announce $45 Billion Bond Purchase Plan

深潮

This week (Dec 9-15) is dominated by two major themes: the Federal Reserve's final rate decision of the year and key developments in AI.

The Fed is widely expected to cut rates by 25 basis points. The real focus, however, is on whether the move is accompanied by a "hawkish" tone. The central bank may signal a more cautious path for future cuts in 2025 to manage internal dissent and inflation concerns. The market's reaction is uncertain: it could either heed this warning (pressuring tech stocks and crypto) or ignore it, choosing instead to focus on anticipated aggressive easing under the incoming Trump administration—a scenario known as the "Hassett Trade."

Concurrently, the AI narrative faces critical tests. Rumors suggest OpenAI may surprise-launch its GPT-5.2 model early, which could significantly boost sentiment across tech and crypto AI tokens. Furthermore, earnings reports from key AI infrastructure firms Broadcom and Oracle will serve as a crucial barometer for the strength of AI-related capital expenditure.

Investors are warned of extreme volatility, particularly due to reduced liquidity from early market closures on Wednesday and a full U.S. market holiday on Thursday. The core events are the FOMC decision, updated economic projections (dot plot), and Chair Powell's press conference at 03:00 GMT on Thursday, followed by Broadcom's earnings. The advice is to reduce leverage ahead of this high-stakes volatility.

<html><head></head><body>(December 9, 2024 - December 15, 2024)Global markets are facing a "Super Central Bank Week," but for U.S. stock and cryptocurrency investors, there is only one core focus: the Federal Reserve's final interest rate decision of the year. This is not just a decision about a rate cut; it is an intense battle over the future policy path.Coupled with a potential new model release from OpenAI and key earnings reports from AI chip stocks, this week is destined to be one of high volatility.<h4> </h4><h2>Core Narrative 1: The Fed's "Hawkish Cut" vs. The Market's "Hassett Trade"</h2>The market is currently pricing in an 84%-95% probability of a 25-basis-point cut this week, meaning the "cut" itself is no longer news. The real focus is on the **"dot plot" (future interest rate expectations)** and **Chair Powell's rhetoric**.<ul><li>Scenario A (Hawkish Cut): The Fed cuts rates by 25 basis points as expected, but to placate intense internal divisions (reportedly, 5 FOMC members are skeptical about further easing), Powell delivers "hawkish" remarks during the press conference, emphasizing that the fight against inflation is not over, and even reduces the projected rate cuts for 2025 in the dot plot.</li><li class="ql-indent-1">Market Impact: If the market "listens," U.S. Treasury yields and the U.S. dollar will rebound, while U.S. stocks (especially high-valuation tech stocks) and cryptocurrencies will face profit-taking pressure.</li><li>Scenario B (The Hassett Trade / Ignoring the Hawks): The market views Powell as a "lame duck," and his hawkish talk no longer matters. Investors focus more on the immense pressure for rate cuts from the incoming Trump administration (including potential next Fed Chair Kevin Hassett and Treasury Secretary Bessent).</li><li class="ql-indent-1">Market Impact: The market chooses to ignore Powell's warnings and continues trading on expectations of comprehensive future easing. This would be extremely beneficial for risk assets, pushing U.S. stocks and Bitcoin higher, while putting pressure on the U.S. dollar.</li></ul><h4> </h4><h2>Core Narrative 2: The Year-End Sprint of the AI Frenzy</h2>Beyond macro liquidity, AI remains the core driver for the U.S. tech sector (Nasdaq) and the crypto AI niche. This week brings two key validation points:<ol><li>An OpenAI GPT-5.2 Surprise? Rumors suggest OpenAI, to counter competition, might "urgently and prematurely" release the GPT-5.2 model as early as Monday or Tuesday this week. If true and the performance is stunning, it would significantly boost sentiment across the entire tech sector and AI tokens in the crypto market.</li><li>AI Infrastructure Earnings Validation: Broadcom (AVGO) and Oracle (ORCL) are set to report earnings. They are key windows into AI infrastructure investment (especially Google's TPU demand and cloud service capital expenditures). Better-than-expected results would prove the AI "picks and shovels" thesis remains robust, benefiting chip stocks like Nvidia and related crypto projects.</li></ol><h4> </h4><h2>This Week's Key Calendar (Beijing Time)</h2>Special Reminder: Liquidity Risk. Due to holiday factors, U.S. stock markets close early on Wednesday and are closed all day Thursday. Bitcoin/Ethereum futures contracts on the CME will also halt trading on Thursday. This means from Wednesday evening until early Friday, the crypto market will face extremely low traditional financial liquidity, making it highly susceptible to violent "wicks" or flash crashes. Futures traders need to be highly vigilant.Monday (December 9) & Tuesday (December 10)<ul><li>Focus: AI Narrative Surprises. Watch closely for any official news regarding an OpenAI GPT-5.2 release. The market might start pricing in this expectation early in the week.</li></ul>Wednesday (December 11)<ul><li>21:30 US Q3 Employment Cost Index (QoQ): An important indicator of inflationary pressures. Hot data could disturb markets before the Fed decision.</li><li>Trading Hours Reminder: NYSE closes early at 02:00 the following day (Beijing Time).</li></ul>Thursday (December 12) —— The Decisive Moment<ul><li>03:00 The Federal Reserve FOMC announces its interest rate decision, policy statement, and Summary of Economic Projections (dot plot). (The core of the core)</li><li>03:30 Federal Reserve Chair Jerome Powell holds a press conference. (Focus on his guidance for the future path)</li><li>~05:00 (After-hours): Broadcom (AVGO) reports earnings.</li><li>21:30 US Weekly Initial Jobless Claims.</li><li>Trading Hours Reminder: U.S. markets closed all day; CME cryptocurrency futures trading suspended.</li></ul>Friday (December 13)<ul><li>Dense Schedule of Fed Speaker Appearances: Philadelphia Fed President Paulson, Cleveland Fed President Harker, and Chicago Fed President Goolsby are scheduled to speak.</li><li>Focus: The market will use these officials' comments to interpret and adjust its understanding of the previous day's FOMC decision.</li></ul>Summary: This week is a collision of macro policy and AI industry trends. For U.S. stock and crypto investors, the safest move might be to control leverage before the major turbulence early Thursday, wait for the Fed's final "cards" to be revealed, and be wary of unexpected volatility due to low mid-week liquidity.</body></html>

# Rate Cut Related Articles

The Fed Faces Its Biggest Internal Divergence in Recent Years! Has Powell Stopped Being 'Hawkish' This Time?

Former New York Fed Expert: Powell May Announce $45 Billion Bond Purchase Plan

Macro Outlook This Week: The Decisive Battle Over the Fed's "Hawkish Rate Cut," A Crucial Test for the AI Narrative