Major Preview: Fed Rate Cut Almost Certain Tonight, Focus Shifts to How "Politicization" Disagreements Will Reshape Monetary Policy

On December 10, tonight marks the Federal Reserve’s final interest rate meeting of the year. The rate decision will be announced at 3:00 AM (UTC+8) on Thursday, followed by a monetary policy press conference held by Fed Chair Jerome Powell 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 a foregone conclusion. However, the biggest focus of the Fed this week is not about the rate cut itself. The new focal points are whether the Fed will inject new liquidity into the market and how increasing “politicization” and divisions among Fed officials will reshape monetary policy towards 2026. The market is watching to see if the Fed will signal “balance sheet expansion” after the rate decision. After quietly halting quantitative tightening, how the Fed manages its massive balance sheet and whether it will inject new liquidity into the market has become key. Last Friday, Bank of America’s global rates strategy team said they expect the Fed to announce this week that, starting in January, it will purchase $45 billion a month in Treasury bills with maturities of one year or less as part of “reserve management operations.” This week’s Fed meeting is also expected to be one of the most contentious in recent years—essentially a “political stress test”—with policy makers’ disagreements over the rate cut outlook set to reshape the 2026 U.S. monetary policy landscape. Of the 12 voting members of the Federal Open Market Committee (FOMC), five have expressed opposition or skepticism toward further monetary easing, while three Board members support a rate cut, further reinforcing the market narrative that the Fed is becoming increasingly politicized. Since 2019, the Fed’s policy committee has never had more than three dissenting votes in a single meeting; such a situation has only occurred nine times since 1990.