Major Preview: Fed Rate Cut Almost Certain Tonight, "Politicization" Divide Becomes Focus in Reshaping Monetary Policy

On December 10, the Federal Reserve's final rate-setting meeting of the year takes place tonight. The interest rate decision will be announced at 3:00 AM (UTC+8) on Thursday, and Fed Chair Powell will hold a monetary policy press conference at 3:30 AM (UTC+8). According to CME FedWatch, there is an 87.6% probability of a 25 basis point rate cut, making a rate cut tonight almost certain. However, the biggest focus this week is not the rate cut itself, but whether the Fed will inject new liquidity into the market and how intensifying "politicization" divisions among Fed officials will reshape the direction of monetary policy through 2026.

The market is watching to see if the Fed will signal "balance sheet expansion" after the rate decision. After quietly halting balance sheet reduction, how the Fed manages its massive balance sheet and whether it injects new liquidity into the market becomes key. Last Friday, Bank of America's Global Rates Strategy team stated that they expect the Fed to announce this week that starting in January, it will purchase $4.5 billion of Treasury bills with maturities of one year or less per month as "reserve management operations."

This week's Fed meeting is also expected to be one of the most contentious in recent years, resembling a "political stress test," as policymakers' divisions over the outlook for rate cuts will reshape the U.S. monetary policy landscape through 2026. Of the 12 voting members of the Federal Open Market Committee (FOMC), 5 are opposed or skeptical of further monetary easing, while 3 members of the Board of Governors support rate cuts, further reinforcing market views that the Fed is becoming increasingly politicized. Since 2019, the Fed's policy committee has never had three or more dissenting votes at a single meeting; this has only happened nine times since 1990.