The Fed suddenly hit the pause button on December 1st, stopping the reduction of its balance sheet. This came a bit unexpectedly—after two years of tightening, they have now suddenly slammed the brakes. What exactly is happening behind the scenes?

In simple terms, the Fed is currently in a dilemma. Inflation is still hovering above 3%, but economic growth is clearly weak, and the job market is also cooling down. Should they continue to tighten? They're afraid of stalling the economy. If they don't tighten, they're worried about inflation coming back. It's a tough spot, so they might as well pause and observe for now. And let's not forget, over the past few years, the Fed has purchased a lot of government bonds to help relieve pressure on the government. If they continue large-scale selling, the government's borrowing costs will skyrocket, and the finances won't be able to handle it. Monetary policy and fiscal policy are inherently linked, and this operation is also aimed at easing the burden on fiscal policy.

What about the market? In the short term, it's considered a positive message. The tightest liquidity period may have passed, and risk assets can finally breathe a sigh of relief. But the reality is that the Fed's balance sheet is still nearly two trillion higher than before the pandemic, meaning there isn't actually much less money in the market. This indicates that the market is likely to differentiate—some will rise, some will fall, and there won't be equal benefits for all. Additionally, the key economic data for the U.S. in October has yet to be released, coinciding with the Fed's policy blackout period, leaving the market without a backbone. When emotions fluctuate, both the stock market and the crypto market ride a roller coaster.

My opinion? The Fed's actions this time indicate that they have sensed the risks of an economic downturn in advance. Whether a new round of easing will come depends on the subsequent inflation and employment data, but at least the relentless "raise rates at all costs" mentality has started to loosen. The market always runs faster than policies, and funds will vote with their feet, flowing to smarter places. If you're also pondering investment directions, it might be better to pay more attention to the movement of funds and see where the money is going.