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?

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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

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White House National Economic Council Director Kevin Hassett emphasized that pre-setting a six-month interest rate path would be "irresponsible," advocating instead for data-dependent monetary policy. In a CNBC interview, he praised Fed Chair Jerome Powell’s leadership in building consensus within the FOMC ahead of an expected rate cut. Hassett avoided specifying the number of rate cuts needed, underscoring the importance of flexibility over rigid forward guidance. He also expressed optimism about AI-driven positive supply shocks, similar to the 1990s tech boom, which could allow the economy to run hotter without inflation. Hassett noted improved bond market conditions and downward trends in Treasury yields, reflecting uncertainty around the Fed’s upcoming decision. His comments highlight the need for adaptive, data-driven policymaking in a complex economic environment.

<html><head></head><body>Kevin Hassett, head of the White House National Economic Council, recently shared important views on the Federal Reserve's interest rate path. As a top contender widely seen as the most likely successor to Powell, Hassett clearly stated that pre-setting interest rate targets for the next six months is an irresponsible act, emphasizing the importance of monetary policy decisions strictly following economic data trends.<h3>I. Interest Rate Decisions Should Avoid Mechanical Forward Guidance</h3>Hassett elaborated on his core stance during a Monday interview with CNBC: "The role of the Federal Reserve Chair is to closely track economic data, adjust policies accordingly, and clearly explain the reasoning behind decisions to the public.Therefore, simply declaring 'I will follow a set plan over the next six months' is highly irresponsible." When asked how many rate cuts might be needed in 2026 to align with economic principles, Hassett avoided giving a specific number.He stated: "I prefer not to guide market expectations by predicting the number of rate cuts. I believe the only thing policymakers need to do is closely monitor data developments." This statement reflects his policy philosophy of opposing rigid forecasts and advocating flexible responses.<h3>II. Consensus Building and Market Expectations Under Powell's Leadership</h3>Earlier this year, U.S. President Trump repeatedly called publicly for the Fed to cut the benchmark rate below 2%, while the target range was then between 3.75% and 4%. Currently, markets widely expect Powell and the Federal Open Market Committee (FOMC) to cut the benchmark rate by another 25 basis points at Wednesday's meeting. Hassett gave a positive assessment of Powell's work. He believes Powell has "excelled at coordinating differing views within the Committee," laying the groundwork for a consensus on a rate cut this week. Hassett said: "I believe Chairman Powell agrees with me on this point—that we should probably maintain a cautious stance, closely follow the data, and further moderately cut rates." Although FOMC members seem divided on the upcoming decision, Hassett noted that Powell has successfully guided policymakers to align "around" the expectations reflected in futures markets.As of Monday, futures market data showed a nearly 100% probability of a 25 basis point cut on Wednesday.<h3>III. AI's Supply Shock and New Dynamics in the Bond Market</h3>The White House economic chief reiterated his optimistic view on investments in artificial intelligence. He believes AI investment could replicate the positive supply shock brought by the computer boom of the 1990s, creating policy space for the Fed to "let the economy run hotter." Hassett analyzed: "If we can recreate the scenario of the 90s, achieving both falling inflation and economic growth driven by a positive supply shock, then the 10-year U.S. Treasury yield has ample room to fall." He also noted that the bond market has "significantly improved" compared to the beginning of the year. He specifically mentioned that Treasury yields have shown a downward trend since early 2025.Hassett added: "Yields are currently in a state of slight fluctuation, which I think partly reflects market uncertainty about the Fed's specific actions and policy signals at this meeting."<h3>IV. The Era of Data-Driven Decision-Making</h3>Hassett's comments highlight the necessity of data-driven monetary policy in the current global economic environment. By avoiding rigid forward guidance, the Fed can maintain policy flexibility to better respond to changing economic conditions. This cautious approach not only helps stabilize market expectations but also leaves necessary policy space to address potential economic risks. </body></html>

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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

Hassett: Setting a Six-Month Interest Rate Roadmap 'Irresponsible', Praises Powell's Leadership

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