The new Fed dot plot has given a clear signal: only two rate cuts are planned for 2026, and only one in 2027, with the goal of returning rates to the so-called normal level by 2028. In other words, the long-term market expectation of a big liquidity wave is basically unrealistic. If you’re still hoping the Federal Reserve will open the floodgates to rescue the market, it’s time to wake up.

Here, I need to correct a very common misconception. Recently, the Fed’s purchase of $400 billion in government bonds has been widely misunderstood as quantitative easing. That’s wrong. It’s actually a repo operation—RMP (overnight reverse repurchase). The purpose isn’t to flood the market with liquidity, but because at the end of the year, bank system cash is tight. The Fed is just stepping in to provide emergency liquidity and plug a hole.

To understand how big this difference is, we need to differentiate three concepts. Quantitative easing (QE) is when the central bank continuously injects liquidity into the market; quantitative tightening (QT) is the opposite, continuously withdrawing liquidity; while repurchase operations (RMP) involve taking back money that has already been spent and temporarily exists in the financial system, to be paid back when needed. They are completely different.

So, getting excited over news of a "purchase" is a big mistake. This is just a routine technical stabilization measure, not a sign that easing policy is being launched. What truly reflects the actual market liquidity situation are deeper indicators—whether leverage ratios are being relaxed, whether bank balance sheets can expand, whether there are actual fiscal subsidies, and whether overnight reverse repos will see rule adjustments.

Next, there are two sets of data to watch closely.

The first is the December non-farm employment report, especially the data from November. The government experienced a shutdown then, which could have suppressed employment growth figures, signaling potential impacts on the Fed’s subsequent policy.

The second is the Consumer Price Index (CPI) for January next year. This is crucial. If, after the rate cut in October, inflation doesn’t decline as expected by the market and remains sticky, the Fed is likely to maintain a tightening stance and won’t shift easily.

In short, the current market environment is already very complex. Do you still expect a big liquidity wave in 2026? Based on current signs, that’s just wishful thinking. In reality, the Fed’s roadmap is clear, and data will continue to verify the policy direction. Instead of daydreaming, it’s better to closely monitor these key points and adjust your trading strategies based on actual data.