Fed emergency stop! The "pump" will be shut down tonight, is the market going to change?

Just now, the Fed dropped a bombshell: starting from December 1st, it will officially pause the balance sheet reduction!
The "pump action" that has lasted for two and a half years has suddenly hit the pause button.
This means that the Fed is no longer withdrawing liquidity from the market, and a quiet shift has begun.

Why now?

· The economy is clearly cooling down, and further stimulus may lead to problems;
· Bank reserves are declining, money is really tight, and the alarm has been sounded.
On the surface, it is a shift in monetary policy, but behind it lies a huge hole in U.S. finances—nearly half of the government bonds purchased by the Fed during the pandemic are helping to "blood transfuse" the finances. If they are sold off again, the government’s borrowing costs are likely to soar.

Fed's steel wire rope:
Inflation is still hovering at a high of 3%, but employment has shown signs of fatigue.
Is it to protect the economy or suppress inflation? It chose the former.

What does it mean for the market?
✅ Short-term positive: Global liquidity pressure has eased, and money is not so tight anymore.
⚠️ But don't celebrate just yet: the Fed's balance sheet is still $2 trillion higher than before the pandemic, and the extra hot money may once again flow into assets, leading to even greater volatility.

There is another hidden pitfall:
Economic data for October will be delayed until December due to the government shutdown.
The "data vacuum period" collides with the "policy U-turn", causing market expectations to become a mess - recently, US stocks have been jumping up and down, and this is one of the behind-the-scenes driving forces.

In summary:
This pause serves as a preventive measure for the economy and signals that liquidity has bottomed out.
The wave of interest rate cuts may come earlier than expected, with 2025-2026 possibly being the turning point.

What do you think?
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