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The rate cut has reached 90%, and signs of stagflation are flashing. Will there be a paradigm shift in the Federal Reserve?
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Hello everyone, today XM Forex will bring you "[XM Forex]: The interest rate cut has reached 90%, and the signal of stagflation is flashing. Will there be a sudden paradigm shift in the Federal Reserve?". Hope this helps you! The original content is as follows:
Asian Market Trends
On Tuesday, Trump actively hinted that Hassett will be the next chairman of the Federal Reserve. The U.S. dollar index came under pressure in late trading. As of now, the U.S. dollar is quoted at 99.18.

Trump: The United States will soon launch a land crackdown on drug cartels.
Trump will announce the candidate for the chairman of the Federal Reserve early next year, actively hinting that Hassett will be the next chairman of the Federal Reserve.
Putin threatened to cut off Ukraine’s sea lanes and vowed to intensify attacks on Ukrainian facilities and ships; Putin said that he could not accept Europe’s modifications to the Russia-Ukraine “peace plan”. If Europe wants to go to war, Russia is now ready; Putin held a meeting with the US envoy, which lasted nearly 5 hours. Russia said the meeting was fruitful and the two sides agreed not to disclose the substance of the negotiations.
Ukraine denies that Russia controls the key Ukrainian city of Pokrovsk. Putin said that the city is www.xmtraders.completely under the control of Russian troops.
The OECD maintains its global economic growth forecast for this year and next, and expects the interest rate cutting cycle of major economies to end next year.
Summary of institutional views
UBS Preview 2026: The policy direction is still to cut interest rates, and the environment supports the rise of risk assets
Global stock markets rebounded significantly last week, and investors regained confidence in the Federal Reserve to further cut interest rates. The market's implied probability of an interest rate cut in December rose rapidly from less than 40% a week ago to more than 87%. Judging from historical experience, as long as the economy is notStocks typically perform the strongest when you're in a recession and the Fed is in a rate-cutting cycle. Although U.S. stock index futures were weaker ahead of Monday's open, the latest economic data further confirmed that the current environment remains favorable for risk assets.
The weakness in the labor market has allowed the Federal Reserve to maintain a dovish bias. Despite the recent polarization in official rhetoric, decision-making still relies heavily on data. Data at this stage point to a 25 basis point rate cut being more likely to be implemented at this meeting. The unemployment rate rose to a new high in nearly four years in September, consumer confidence fell to its lowest level since April in November, and the Beige Book also showed that more jurisdictions have experienced hiring freezes. Whether the interest rate is cut in December or extended to January, the difference lies only in the timing, not the final policy direction. The market should pay more attention to the final interest rate range, which will continue to support the investment environment in the medium term.
The current economic slowdown in the United States is likely to be temporary, and global growth is expected to accelerate in 2026. Although retail sales in September were slightly weaker than expected, residents' balance sheets remain solid. Structural tax cuts at the fiscal policy level will also drive growth in the second half of 2026. The upcoming fiscal stimulus and infrastructure investment in major developed economies will also provide stronger support for global growth, thereby creating a friendly macro backdrop for risk assets. Strong earnings growth expectations will continue to drive stocks higher. Although global valuations are higher than the historical center, this is mainly due to the increase in the weight of high-valuation sectors. Earnings growth is the more critical forward-looking indicator of earnings. We expect the earnings growth rate of major markets in the www.xmtraders.coming year to be between 7% and 14%, which lays the foundation for continued upward growth in the short term.
JP Morgan Chase 2026 Outlook: Interest rate cuts are highly uncertain, and the XX market may perform well
After experiencing the policy storm in 2025, the U.S. economy should continue to show resilience in 2026 and continue to support risky assets such as stocks and corporate credit. However, under the surface, cyclical economic momentum is still weak, and the U.S. economy presents a "K-shaped structure": middle-income and lower-income groups feel greater pressure, while interest-rate-sensitive industries (such as housing) remain sluggish. Affected by the Big Beauty Act, both economic growth and inflation will accelerate in early 2026. Afterwards, however, higher tariff levels and lower immigration will lead to slower economic growth and cooling inflation. The Fed officials are quite divided, and the easing path may be more moderate and slower, because both ends of its dual mission face risks, and it is expected that there will be 2-3 interest rate cuts in 2026. In this environment, long-term interest rates should remain range-bound, so we believe investors should remain flexible in duration management. Rather than trying to accurately capture the position of interest rates, it is better to rely more on the returns provided by fixed income assets, especially those that rely on solid corporate, residential and local government balance sheets. On the equity side, we continue to believe the most prominent opportunities arise from structural trends rather than cyclical rallies.
In overseas markets, we expect other structural forces to further narrow the profit growth gap between them and the United States, including higher nominal growth and stronger government investment.and a focus on shareholder returns. Coupled with the continued weakness of the U.S. dollar and still low market expectations, 2026 may make 2026 a good year for international markets, especially emerging markets in Asia.
Warp Securities: When the Fed stops shrinking its balance sheet, what is the cost of releasing liquidity?
The Federal Reserve’s Balance Sheet Runoff (Quantitative Tightening) ended on December 1. Going forward, the Fed will keep the size of its SOMA (Open Market Operations Account) portfolio at its current level - about $6.1 trillion last week.
The Federal Reserve will allow its holdings of agency/agency mortgage-backed securities (agency/agency MBS) to continue to shrink and reinvest their maturity proceeds in U.S. Treasury bills (Treasury bills). The SOMA portfolio currently holds $4.0 trillion in U.S. Treasuries and $2.05 trillion in agency/agency mortgage-backed securities, meaning that there will be a huge reallocation of collateral between these two markets over the next few years. $2 trillion in agency/agency mortgage-backed securities will flow into the market, while the Fed will simultaneously absorb $2 trillion in Treasury issuance.
The Federal Reserve ends its balance sheet reduction, which will reduce liquidity losses. The Fed will absorb $2 trillion in Treasury bill issuance, which will further reduce liquidity drain. However, this www.xmtraders.comes at the expense of the agency/agency mortgage-backed securities market, which will face a significant increase in supply requiring financing.
BlackRock: Data delays add to uncertainty, and markets expect the Fed to cut interest rates again
The Fed has cut interest rates twice this year and has put labor market weakness at the center of its decisions. The central bank is concerned that the labor market could weaken further, necessitating a "risk management" interest rate cut. Given data delays caused by the prolonged government shutdown, it will be harder for the Federal Reserve to understand the state of the economy ahead of next week's meeting.
The September jobs report and other data showed that the labor market is in a "no hiring, no firing" stasis. Job growth has slowed since the beginning of the year. Both demand and supply of labor have slowed, the latter due to a sharp slowdown in immigration. This pulls down the "break-even" level of non-farm employment growth needed to keep the unemployment rate stable. This may also explain why wage growth has also remained stable and why the unemployment rate has only increased slightly this year and remains at historically low levels.
These delayed data - which include October and November non-farm payrolls data on December 16, but no October unemployment data - can be noisy. October's data will include deferred federal job cuts, which could lead to a sharp decline in overall employment for the month - something the Fed may have factored into its earlier decision. And the data will be released after its December 10 policy decision.
Markets are mostly pricing in a quarter-percentage point rate cut next week. We agree andIt is believed that the "no hiring, no firing" stagnation provides room for the Fed to continue cutting policy rates in 2026. That's a change from earlier this year, when the Fed faced calls to cut interest rates even as labor data showed strength, stoking policy tensions between sticky inflation and debt sustainability. Even if inflation remains well above its 2% target, the Fed now has a path to lower interest rates without raising questions about the tensions surrounding those policies. If inflation accelerates next year due to stronger activity or renewed hiring, these tensions could resurface and push longer-term bond yields higher.
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