The latest data from the Federal Reserve Observation Tool shows that the market probability of a rate cut in January has sharply declined from 35% to less than 18%. This shift indicates that the long-anticipated "New Year rate cut" on Wall Street has become a mirage, and the high-interest-rate environment will persist far beyond market expectations.

The chain reaction triggered by this signal is worth noting. First, there is the risk of global asset re-pricing. U.S. Treasury yields are expected to rise again, directly threatening tech stocks supported by high valuations. When the cost of capital remains high, companies relying on low-interest environments to maintain valuations will face severe tests. Second, signs of liquidity exhaustion are already evident in the corporate bond market, with default risk alarms ringing continuously. Third, the crypto asset market is also not immune to this storm—large-scale leverage by institutions is being forced to withdraw.

From a deeper perspective, the reason the Federal Reserve refuses to cut rates may carry more concerning implications than the surface suggests. It is not just a decision to maintain the status quo but could also lay the groundwork for subsequent rate hikes. When even the most dovish policymakers insist on high interest rates, the inflation data they see is likely far more severe than publicly disclosed.

Looking ahead to the first quarter of 2026, the market will face multiple shocks. All hopes of rate cuts will be dashed, the dollar appreciation will trigger a currency crisis in emerging markets, and risk assets will experience indiscriminate sell-offs. Historical data shows that when the probability of rate cuts drops by more than 50%, the S&P 500 has averaged a 12% decline over the following three months—this time, the impact will be even greater.

For holders, several practical actions need to be implemented promptly. First, reduce holdings of tech stocks based on high valuation logic and bonds with lower credit ratings. Second, increase allocations to cash and defensive assets. Third, conduct risk assessments of crypto positions and reduce leverage ratios to within a safe, manageable range.

Every "hawkish turn" by the Federal Reserve creates winners and losers. The key difference lies in who can perceive the risk signals in the monetary policy environment in advance. Either proactively adjust the portfolio structure now or passively endure the consequences of liquidity tightening. The Fed’s policy shifts are never announced in advance; the market is only left with the opportunity for quick-reacting participants to escape.