US: December FOMC Review

■ The decision to lower the target range for the Federal Open Market Committee (FOMC) interest rate at the December FOMC meeting brought a sense of reassurance to the financial markets.  
■ However, the FOMC's internal views have not converged, and it remains in a phase of observing the pace of rate cuts and the final interest rate in the short term.  
 
   At the Federal Open Market Committee (FOMC) meetings held on December 9th and 10th, as expected, the target range for the FOMC interest rate was lowered by 0.25% for the third consecutive meeting, to 3.50–3.75%. The financial markets generally anticipated the meeting to signal a "not overly hawkish" attitude. However, from the announcement of the meeting results through Fed Chairman Powell's press conference, the market reaction was characterized by rising US stocks, increasing US Treasury yields, and a weakening dollar. This suggested that the market interpreted the FOMC's tone as not overly hawkish, which provided reassurance. 
 
   Based on the statement, the Summary of the Economic Projection (SEP), and the Chairman's press conference, three main points emerged for the market. (1) The statement announced plans to start purchasing short-term Treasury bonds from December 12, primarily to maintain the Fed's balance sheet size and stabilize short-term financial markets — this is not a sign of monetary easing. The initiation date came sooner than expected, which was unexpected. (2) The SEP forecasted a median policy rate of "3.4%" by the end of 2026, aligning with pre-meeting expectations. However, a significant portion of participants—8 out of 19—anticipated more than two rate cuts in 2026. (3) During the press conference, Powell highlighted risks facing the labor market and stressed that "rate hikes are not anyone's baseline scenario," implying a continued tendency toward rate cuts. 
 
   On the hawkish side, several factors stood out. (4) The statement referenced "when considering the magnitude and timing of adjustments," identical phrasing from last December when rate cuts were paused, hinting that the January meeting might hold rates steady. (5) The SEP forecast showed that 6 of 19 members supported keeping the rate unchanged at this meeting. Furthermore, (6) the economic and inflation outlook revised the 2026 growth forecast upward from 1.8% in September to 2.3%, with the Chair noting at the press conference that the baseline scenario for next year involves "accelerated growth." 
 
   Ultimately, due to a partial shutdown of US government agencies causing delays in some economic data releases, combined with the variety of forecasts from SEP, the financial markets are currently in a phase of watching the pace of the Fed's rate cut and the final target interest rate (terminal rate). It’s expected that market volatility and instability will persist as US economic data continue to change in the near future.