On December 8, despite the market seemingly having priced in another Fed rate cut and pushing the U.S. stock market close to record highs last Friday, the real driving force for the bull market in stocks and other risk assets from this week’s Fed policy meeting may not come from interest rates. After quietly halting quantitative tightening, how the Fed manages its massive balance sheet—and whether it injects new liquidity into the market—is key.

Bank of America Global's rates strategy team said last Friday that they expect the Fed to announce this week that, starting in January, it will purchase $45 billion per month in Treasury bills with maturities of one year or less as part of "reserve management operations."

Others believe this may take more time, and that the Fed doesn’t need to take excessive action to keep markets running smoothly. Roger Hallam, global head of rates at Vanguard Fixed Income Group, expects the Fed to begin buying Treasury bills at a pace of $15-20 billion per month by the end of Q1 or the beginning of Q2 next year.

Kelly from PineBridge expects the Fed to cut rates by another 25 basis points on December 10, which would bring the policy rate down to the 3.5%-3.75% range—one step closer to the roughly 3% historical neutral rate aimed at maintaining stable economic growth.