On December 1st, the Fed made a key decision: to stop tapering.

This matter seems simple to say, but its significance is not small. Since June 2022, the Fed has withdrawn nearly $2.4 trillion in liquidity through balance sheet reduction. Now suddenly hitting the brakes, the signal behind this is worth pondering.

**Why choose this timing?**

Two pressures have already been placed on the table.

First, the economic growth rate has clearly slowed down. Continuing to tighten monetary policy will result in less and less money circulating in the market, leading to increased financing costs for enterprises and affecting both consumption and investment.

Second, liquidity has tightened to a critical point. The reserve levels in the banking system are declining, and there have been some abnormal fluctuations in the money market—if it is pushed down further, it could trigger a chain reaction.

**The deeper logic is more worthy of attention.**

The Fed's balance sheet is actually tied to the US Treasury. During the pandemic, the central bank purchased a large amount of government bonds, which provided implicit support for government spending. If these bonds are sold off now, bond yields will rise, and the cost for the government to borrow money will also increase significantly. Under the circumstances of a persistently high fiscal deficit, this burden cannot be sustained.

So you will see a contradictory situation: inflation data is still at 3.0%, but the labor market has begun to weaken. The Fed must choose between "controlling prices" and "preserving the economy." This time, it chose the latter.

**What does it mean for the market?**

The tightest phase of liquidity should be over. Money will not become tighter, which is a positive signal for risk assets.

But don’t be too happy too soon. Stopping the tapering does not mean flooding the market; it just means they will no longer actively withdraw liquidity. Real liquidity easing will depend on how subsequent policies unfold. The market may experience a short-term emotional release, but the medium-term trend will still depend on whether economic data and inflation can truly decline.

At this stage, rather than chasing highs and cutting losses, it is better to first see the direction clearly before taking action.