The December rate hike meeting just adjourned, and the Federal Reserve dropped a bombshell — not only cutting interest rates by 25 basis points but also officially announcing the initiation of large-scale bond purchases. Powell was quite clear this time: the actions will wrap up before the tax deadline on April 15 next year.

The market is now focused on this move. Frankly, this is the Fed’s "technical adjustment" to prevent liquidity issues. Starting December 12, they will begin buying in the secondary market, initially purchasing about $40 billion worth of short-term government bonds, maintaining this level for the next few months. The goal is straightforward — to provide a buffer of reserves for the banking system and prevent market rates from soaring when the Treasury issues bonds to fund the TGA account.

Powell specifically clarified: this is not quantitative easing, but purely a liquidity management tool. He also drew a line — the bond purchase scale will stay high for several months and then significantly reduce by the second quarter of next year, with the key date set before April 15. This indicates that the Fed is fairly confident about liquidity returning in Q2, which can be seen as giving the market some reassurance.

Is a rate cut and liquidity injection happening simultaneously? Such a combination is uncommon. Powell’s move not only stabilizes the nerves of the monetary market but also leaves room for policy maneuvers next year. For investors, the key point to watch is the April timeline — it can basically tell you the direction of monetary policy in the second half of the year.