The Federal Reserve (Fed) has cut interest rates by 25 basis points (bp) as anticipated, lowering the federal funds rate target range to 3.50%-3.75%. This marks the sixth rate cut since the easing cycle began in September 2024 and the third reduction this year.
**Key Takeaways:** - **Rate Decision:** 25bp cut, bringing the benchmark rate to 3.50%-3.75%. - **Vote Split:** 9 in favor, 3 against—highlighting internal divisions. One dissenter preferred a 50bp cut, while two advocated for no change. - **Dot Plot:** The median projection for the 2026 year-end rate remains at 3.375%, suggesting one more 25bp cut next year. - **Reserve Management Purchases (RMP):** Starting December 12, the Fed will buy $40 billion in Treasury bills monthly to replenish banking system reserves.
Though the Fed’s short-term Treasury purchases (T-bills) differ from traditional quantitative easing (QE), the U.S. Treasury’s parallel long-bond buybacks—aimed at improving market liquidity and capping yield rises—effectively create a "shadow QE." The Treasury has doubled its quarterly long-bond repurchases to four, raising the per-operation cap to $20 billion and the quarterly limit to $380 billion.
**Market Reactions Post-Announcement (3 AM ET):** 1. **USD Index:** Initially dipped to 98.59, briefly rebounded, then plunged again (-0.46% intraday). 2. **Treasury Yields:** 2-year and 10-year yields fell, with the 2-year dropping more sharply (-1.85% vs. -1.21%). 3. **Equities:** Nasdaq 100 led gains amid liquidity optimism. 4. **Precious Metals:** Silver surged over 3% intraday, outpacing gold. 5. **Bitcoin:** Spiked 2.89% to $94,000.
These moves align with textbook expectations of liquidity-driven rallies across asset classes.
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