The Federal Reserve Implements Three Consecutive Rate Cuts: Powell Turns Dovish, Market Liquidity Opens the Curtain

On December 10, Fed Chair Jerome Powell announced a 25 basis point rate cut, completing the third cut of the year with a total reduction of 75 basis points, fully aligned with market expectations. Since this decision had been priced in by the capital markets in advance, Powell’s post-meeting remarks became the focal point, with a dovish tone and policy signals directly influencing subsequent market trends.

Key Focus of Powell’s Speech: A 180-Degree Shift from “Risk Management” to “Prioritizing Employment”

Unlike his September emphasis on “rate cuts as risk management” and October’s suggestion that “there may not be a cut in December,” this time Powell’s focus was entirely on economic fundamentals, shedding any hawkish tone and adopting a clear stance. The speech conveyed three major signals:

- Policy Priority Shift: Clearly placing employment stabilization above inflation control, the meeting statement directly removed the phrase “low unemployment rate,” stating simply that “the US economy is growing moderately, but job growth has slowed and the unemployment rate has risen this year.” The implication is that if employment data continues to weaken, monetary policy will become more accommodative.
- Easing Inflation Expectations: Powell pointed out that current high inflation is mainly driven by tariffs implemented by the Trump administration, describing it as a “one-time price increase.” Non-tariff sectors have shown improvement, and service inflation continues to decline; if no new tariffs are added, commodity inflation is expected to peak in the first quarter of 2026 and gradually fall back toward the 2% target.
- Policy Flexibility Commitment: Emphasizing that monetary policy has no preset course, Powell said it will be dynamically adjusted based on economic data, outlook changes, and risk balance. The current policy stance is within a neutral expectation range, leaving room for future adjustments.

The 2026 Rate Cut Puzzle: Internal Disagreements and Uncertainty from Leadership Changes

The latest dot plot indicates significant divergence within the Fed regarding future rate paths:

- Expectation of one rate cut in 2026, another in 2027, with rates remaining stable in 2028. Looking ahead, the rate cut cycle is officially open, with forecasts of rates declining to 3.4% by the end of 2026 and further to 3.1% by the end of 2027.
- Compared to September’s projections, support for a rate hike in 2026 increased by one member; those advocating for no change decreased by two, support for rate cuts increased by two, with four members supporting two cuts, three supporting three cuts, and one proposing six cuts, indicating heightened disagreement.

Greater uncertainty stems from leadership turnover: Powell is set to step down as Chair in May 2026 (with a Board term until 2028), with Kevin Hasset, Director of the White House National Economic Council, as the most likely successor. The dot plot in June 2026, after the new Chair takes office, will be a key indicator of future policy direction.

Balance Sheet Expansion: $40 Billion Monthly Asset Purchases Kick Off “Direct Liquidity Injection”

In addition to rate cuts, Powell announced a “Reserve Management Purchase Program” with greater liquidity impact: starting December, the Fed will buy short-term US Treasuries, with an initial monthly volume of $40 billion, maintaining high levels of bond purchases in subsequent months. While rate cuts reduce borrowing costs, bond purchases inject base money directly into the market, akin to “printing money,” primarily aimed at supplementing market liquidity and preventing liquidity shortages. Following this policy announcement, the US stock markets surged, with the three major indices jumping sharply, and the cryptocurrency market responded early—Bitcoin briefly touched $94,554, and Ethereum approached $3,400.

On-Chain and Capital Flows: Continuous Inflows Amid Bull-Bear Battles in Crypto Markets

Despite positive market reactions, the crypto market remains highly volatile with fierce battles between bulls and bears:

- BTC turnover rate increased, with short-term holders mainly selling, but no panic selling from high-cost positions, maintaining a healthy distribution of holdings.
- Ethereum ecosystem performed strongly, with whales like BMNR increasing positions; within two hours, they received 35,000 ETH from FalconX. The network’s L2 activity increased after the Fusaka upgrade, and ETH’s deflation rate reached -0.18%, reinforcing scarcity narratives.
- Capital flows remained positive, with USDT inflows of $276 million and USDC inflows of $196 million; funds from Asia and the US continued to pour into the market, supporting crypto assets.

Future Focus: Three Major Events to Set Short-Term Market Sentiment

Following the Fed’s easing cycle, the market will enter a “data verification period.” The following three events warrant close attention:

1. November Non-Farm Payrolls and CPI Data: US November CPI data will be released on the evening of December 18 Beijing time. Current forecasts suggest a decline in food prices, but energy and transportation components may push inflation higher, with year-over-year growth slightly above 3%. Non-farm payroll data, though delayed, show that the employment market has not weakened significantly, and these two data points will directly influence the Fed’s upcoming easing pace.
2. Japan’s Interest Rate Hike Dynamics: Expectations for a rate hike in Japan in December are rising, potentially triggering global capital reallocation and causing short-term risk asset volatility.
3. Key Crypto Levels: Bitcoin must hold above $94,500 resistance, then aim for $96,000 (the 2021 high area of trapped positions) and the psychological $10,000 mark. ETH needs to stay above $3,300; breaking through could push towards the $3,500-3,600 range.

Overall, this meeting marks the official shift of the Fed’s policy focus to “stabilizing employment and maintaining liquidity.” As long as the US economy does not experience a sharp downturn, easing measures will continue. For investors, it’s crucial to closely monitor economic data and policy implementation rhythm to seize asset price increases driven by liquidity expansion.