2026 is expected to see only one rate cut! Federal Reserve: Interest rates are no longer the focus, officials are concerned about short-term financing pressures

The Federal Reserve meeting minutes show a shift in focus toward short-term financing pressures, predicting only one rate cut in 2026, and will purchase Treasury securities to maintain market liquidity stability.

The Fed shifts focus to cash flow, with short-term financing pressures becoming a hidden concern

The U.S. Federal Reserve (Fed) released the minutes of its December monetary policy meeting on December 30 last year, revealing a change in the officials’ focus.

According to CoinDesk, Fed officials are increasingly concerned about whether the financial system has enough cash to operate smoothly, and their attention to interest rate changes has relatively decreased.

The minutes reveal a rarely noticed market risk, namely that pressures in the short-term funding market could quietly emerge and trigger market volatility in an instant.

Although officials described the reserve levels of the banking system as ample, CoinDesk pointed out that current reserve levels are in a relatively sensitive zone. Within this zone, even slight fluctuations in funding demand could push up overnight borrowing costs and exert pressure on liquidity.

The minutes repeatedly emphasize signs of tightening in the short-term funding market, including relatively high repo rates and increased volatility. These signals have led the Fed to worry that, even if interest rates remain stable, the financial system could still face technical cash shortages.

Image source: Federal Reserve meeting minutes, Reserve requirements section

The Fed estimates only one rate cut in 2026, focusing on inflation and unemployment

In December last year, the Fed decided to cut interest rates by 25 basis points, lowering the federal funds rate target range to 3.5% to 3.75%, marking the third consecutive rate cut in 2025. The main reason is that officials generally believe that slowing monthly employment growth and rising unemployment warrant a moderate easing of policy restrictions.

However, foreign media Reuters analyzed that as interest rates gradually fall to a neutral level that neither stimulates nor restrains the economy, disagreements within the Fed have widened.

The minutes indicate that the rate decision process in December involved extremely subtle and in-depth debates, with some officials supporting a rate cut admitting it was a close call, and even suggesting that maintaining the current rate was also a viable option.

However, economic forecasts released after the December meeting show that only one rate cut is expected in 2026, and future liquidity flows will become a key variable influencing the economy.

The new policy statement hints that the Fed is currently inclined to adopt a wait-and-see approach, considering further action only if more data shows persistent inflation decline or unemployment rises beyond expectations.

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Federal Reserve launches simplified main account concept! Crypto institutions may gain “limited” access to Fed payment system

The Fed initiates bond purchase plan, expected to keep rates unchanged in January

To address liquidity risks, the minutes outline the Fed’s planned preventive measures.

The Fed expects to maintain ample reserves by purchasing short-term Treasury securities before seasonal funding pressures increase in early 2026, to prevent cash shortages, ensure smooth market operations, and not change its monetary policy stance.

Additionally, due to the previous U.S. government shutdown lasting 43 days, which delayed official data releases, officials’ assessments of the economic outlook have been affected.

Regarding the upcoming policy direction, the Fed will hold its next meeting from January 27 to 28, U.S. time. CME Group’s FedWatch data shows that the market currently expects the Fed to hold steady and keep rates unchanged at that time.

Image source: FedWatch, Fed initiates bond purchase plan, expected to keep rates unchanged in January