Analysis: The Fed is not as hawkish as expected; the rate-cutting cycle continues.
TL;DR
The Fed's openness to more rate cuts in 2026 boosted markets, with stocks and bonds rising despite internal divisions. Investors see potential for further cuts if the labor market weakens, and the Fed's balance sheet expansion eased lending pressures.
Tags
The Federal Odaily's signals this week that it is open to further interest rate cuts in 2026 were welcomed by investors. The market had previously priced in a "hawkish" rate cut by the central bank—lowering the benchmark federal funds rate—while simultaneously strongly hinting at a reluctance to make further adjustments. U.S. stocks rose along with bonds, with the Dow Jones Industrial Average climbing nearly 650 points (1.3%) on Thursday, hitting a record high. Despite internal divisions within the Fed and mixed signals released on Wednesday, many still see signs that even a slight further weakening in the labor market could prompt the central bank to cut rates again in the coming months. The Fed's announcement that it will expand its balance sheet by purchasing short-term Treasury bonds, a move aimed at easing recent pressures in the overnight lending market, also encouraged investors. Investors expect the Fed to be significantly different next year, with Trump beginning final interviews this week with potential successors to Powell. (Jinshi)