The biggest focus of the Fed this week: It's not about rate cuts, but whether it will inject new liquidity into the market.

BlockBeats News, December 8 — Although the market seems to have already priced in another Fed rate cut and pushed the US stock market close to historical 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 actually come from interest rates. After quietly ending quantitative tightening, the key issue is how the Fed will manage its massive balance sheet and whether it will inject new liquidity into the market. Last Friday, Bank of America Global’s interest rate strategy team stated that they expect the Fed to announce this week that it will begin purchasing Treasury bills with maturities of one year or less at a pace of $45 billion per month starting in January, as part of “reserve management operations.” Others believe this may take more time, and that the Fed does not need to take excessive action to keep the market running smoothly. Roger Hallam, Global Head of Rates at Vanguard Fixed Income Group, expects the Fed to begin purchasing Treasuries at a pace of $15–20 billion per month by the end of Q1 or early Q2 next year. PineBridge’s Kelly expects the Fed to cut rates by another 25 basis points on December 10, bringing the policy rate down to a 3.5%–3.75% range, moving one step closer to the roughly 3% historical neutral rate aimed at keeping the economy running smoothly. (Jin10)