The market had anticipated a "hawkish rate cut" from the Federal Reserve, but the actual outcome revealed fewer dissenters, no upward revision in the dot plot, and no tough stance from Chair Jerome Powell as speculated. Wall Street analysts now expect the Fed to cut rates by more than the 25 basis points indicated in the dot plot next year. Leadership changes and policy uncertainty could become key drivers of market volatility in 2026.
The Fed cut rates by 25 basis points as expected, but the move was less hawkish than anticipated. Early Thursday, the central bank announced the rate cut and revealed a $40 billion Treasury purchase plan to begin within two days, with the New York Fed detailing the execution strategy. This marks the first time since the liquidity crunch during the early 2020 pandemic that such measures were explicitly mentioned in the policy statement—a move some analysts view as a clear dovish signal.
The dot plot showed six members favored holding rates steady next year, but only two voting members dissented, fewer than the hawkish lineup the market had predicted. Despite expectations of a hawkish tilt, the absence of stronger opposition or a higher rate trajectory surprised observers. Analysts now interpret the decision as more accommodative than anticipated.
**Dovish Signals Outweigh the Rate Cut Itself** Bloomberg Chief Economist Anna Wong noted the overall tone leaned dovish, despite some hawkish undercurrents. The committee significantly upgraded growth forecasts while lowering inflation expectations and keeping the dot plot unchanged. She projects 100 basis points of cuts next year—far above the 25 basis points implied by the dot plot—citing weak wage growth and little sign of inflation rebounding in early 2026.
David Mericle, Goldman Sachs’ head of U.S. economics research, stated the decision contained nuanced hawkish elements but largely matched expectations. He highlighted that six members dissented on 2025 projections, more than anticipated. However, the Fed’s unusual move to explicitly announce Treasury purchases for balance sheet stability stood out.
Goldman macro FX strategist Mike Cahill focused on labor market projections, noting the committee maintained its Q4 unemployment forecast at 4.5%, implying slower growth. With current unemployment at 4.44%, reaching the median forecast would require monthly increases below 5 basis points—yet seven members projected 4.6%-4.7%, aligning better with recent trends.
**Treasury Purchase Plan Draws Scrutiny** Bloomberg rate strategist Ira Jersey questioned the Fed’s reserve management strategy, arguing that temporary open market operations—not permanent ones—should address reserve shortages. While acknowledging the need for gradual asset growth, he suggested traditional repo operations would better calibrate reserve needs.
Deutsche Bank’s chief U.S. economist, Matthew Luzzetti, sought clarity on whether the committee had factored in expected labor market softness from delayed jobs data. Tikehau Capital’s Raphael Thuin noted policymakers face balancing weak labor signals against disinflationary pressures amid limited data visibility, leading to heightened policy uncertainty—a potential volatility driver in 2026.
**Leadership Transition Adds Uncertainty** Jim Bianco of Bianco Research emphasized the significance of a new Fed chair in 2026, warning of perceived political agendas. He had hoped for more dissent to signal the committee’s readiness as a political counterbalance but noted inaction now risks politicized reactions later.
Principal Asset Management’s Seema Shah doubted the Fed’s confidence in voting unanimously given sparse recent data and divergent views on neutral rates. She expects a pause to assess prior tightening effects, with modest 2026 easing contingent on stronger economic evidence.
Charles Schwab UK’s Richard Flynn viewed the move as a cautious signal against global slowdown risks. He characterized it as a mild adjustment rather than a sharp pivot, noting rate cuts may support risk assets near-term—potentially fueling a seasonal "Santa rally"—but volatility could persist as markets digest policy and economic implications.
*Investing involves risks. This analysis does not constitute personal investment advice.*
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