The US stock market has recently approached its highest levels, driven by expectations of lower interest rates. However, the primary factor behind the rise in stocks and other risk assets may not be the interest rates themselves but anticipated changes in the Federal Reserve’s asset management approach. With a substantial balance sheet, the Fed’s strategy to inject liquidity into the market has become a focal point for investors. Bank of America’s Global Rates Strategy team believes the Fed could soon announce a plan to purchase $45 billion in Treasury bills with maturities of one year or less monthly starting in January to enhance its reserve management operations. This move would increase cash flow in the market, potentially encouraging investment. Conversely, some experts urge caution, suggesting the Fed can stabilize the market without major interventions. Roger Holm, global head of Vanguard’s Fixed Income Group, estimates the Fed may begin buying $15 to $20 billion in Treasury bills monthly by the first or second quarter of next year. Additionally, Kelly from PineBridge expects the Fed to cut interest rates by 25 basis points on December 10, bringing the policy rate to a range of 3.5% to 3.75%, historically considered conducive to economic stability. This prospective strategy by the Federal Reserve could significantly affect not only the US economy but also global financial markets, as increased liquidity fosters investment trends and stabilizes asset prices. Nonetheless, the market’s anticipatory stance and potential interest rate shifts may pose challenges for investors.
Source: binance
