Last night (December 10), the Federal Reserve's monetary policy meeting results were announced. Overall, this was a "hawkish rate cut" that aligned with market expectations but involved significant internal disagreement. Here are the key points summarized for you.

Meeting Highlights

(1) Interest Rate Decision:
A 25 basis point cut, lowering the federal funds target range to 3.50%-3.75%. This is the third consecutive rate cut since September this year, with a total reduction of 75 basis points.

(2) Dot Plot Indications:
The latest dot plot shows that the median forecast for the end-of-2026 interest rate remains at 3.4%, consistent with the September forecast. This suggests the Fed may only cut rates once more by 2026.

(3) Internal Votes:
There were 3 dissenting votes in this decision, the first since 2019, highlighting significant disagreement within the decision-making body.

(4) Balance Sheet:
Announced plans to purchase short-term US Treasury securities as needed to maintain ample reserve levels. This is viewed as a technical operation aimed at providing liquidity to the market rather than a new round of quantitative easing.

Key Details and Market Impact:
Where is the "Hawkish" tone? Despite the rate cut, the dot plot indicates a significantly slower pace of rate cuts next year. Additionally, the statement included a new phrase: "considering the timing and extent of future adjustments to the federal funds rate target range," which typically signals that monetary policy may enter a period of watchful waiting. This "rate cut but with a slower pace" combination is interpreted by the market as having "hawkish" characteristics.

Serious Internal Disagreement: The three dissenting votes came from different stances. Governor Stephen Miran advocated for a 50 basis point cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid preferred to hold rates unchanged. This divergence reflects the Fed's significant challenge in balancing "upward inflation risks" against "downward employment risks."

Powell’s Remarks: Fed Chair Jerome Powell stated at the press conference that the current monetary policy stance is in the "neutral" range, and future decisions will be highly data-dependent. He specifically pointed out that current inflation exceeding the target is mainly due to "one-time price increases" caused by tariffs, indicating that the Fed views inflation pressures as potentially temporary.

Summary
In conclusion, the core message from this meeting is: the Fed is cautious and gradually easing policy while remaining vigilant about inflation amid economic uncertainties. For markets, this means the overly aggressive easing expectations have been disappointed, and asset price volatility may become more dependent on upcoming economic data.

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