Powell's hawkishness falls short of expectations + "mini QE" triggers market explosion! The US dollar plunges, while US bonds and precious metals soar.

Due to a speech by Federal Reserve Chairman Powell at a press conference that was not as hawkish as expected by the market, and the Federal Reserve announced the purchase of $40 billion in short-term Treasury bonds starting on December 12, the US dollar fell, while US bonds and precious metals rose in response. Data shows that the US dollar index (DXY) fell by 0.59% to 98.64; Bloomberg's US dollar spot index fell by 0.4%, marking the largest single-day decline since September 16. As for US bonds, yields at all maturities fell across the board, pulling back from multi-month highs. At the time of writing, the 2-year US bond yield sensitive to Federal Reserve policy fell to 3.524%, while the 10-year US bond yield fell to 4.14%. As the US dollar and US bond yields decreased, precious metals rose. At the time of writing, spot gold rose slightly to $4232.90 per ounce, while spot silver rose to $61.90 per ounce. The Federal Open Market Committee of the Federal Reserve cut interest rates on Wednesday as expected, with a 9-3 vote result to lower the federal funds rate by 25 basis points to a range of 3.5%-3.75%. The committee also adjusted its language in the statement, suggesting greater uncertainty about the timing of future rate cuts. Powell, in a press conference following the rate decision announcement, stated that the current policy adjustment helps stabilize a weakening labor market while maintaining sufficiently tight conditions to suppress inflation. He said, "As tariff effects gradually fade, this further normalization should support employment and bring inflation back towards our 2% target." Regarding inflation, Powell emphasized that the current inflation rate exceeding the Fed's 2% target is mainly due to the Trump administration's tariffs on imports. He reiterated that the impact of tariffs on inflation may be only a "one-time price increase." Powell stated that since September, the committee's adjustment to its policy stance has placed it within the neutral expectation range, allowing them to better assess the magnitude and timing of further rate adjustments based on the latest data, evolving economic outlook, and risk balance. Powell noted that in the FOMC's summary of economic projections, participants evaluated the appropriate path of the federal funds rate for the most likely economic scenarios. The median forecast for the federal funds rate at the end of 2026 was 3.4%, and 3.1% at the end of 2027, unchanged from the September forecast. However, these forecasts are uncertain and are not plans or decisions of the committee. Monetary policy is not pre-set, and they will make decisions based on specific circumstances at each meeting. While the Fed's forecast for rates in 2026 implies a 25 basis point cut, traders are still betting on two rate cuts next year. Currently, it is expected that the Fed will cut rates once in June and once in the fourth quarter of next year. Traders are betting on two rate cuts by the Fed in 2026 The market believes that Powell's tone at the press conference was not as hawkish as previously expected. Economist Anna Wong said, "Overall, the tone of the statement and updated forecasts leans dovish." Alex Cohen, a strategist at Bank of America, said, "Compared to what we were seeing in previous forecasts, Powell's view of the labor market is not as optimistic." He added that Powell's comments on employment and inflation led to a decline in the US dollar. Nathan Thooft, Senior Portfolio Manager at Manulife Investment Management, also pointed out that the market expected the Fed to take a fairly hawkish tone, "but Powell turned out to be more dovish." Priya Misra, Portfolio Manager at Brandywine Global Investment Management, said, "The overall message of the press conference is that even though the federal funds rate is within the range of most neutral estimates, the Fed will maintain flexibility and dependence on data." She added, "Powell seems concerned about the weakness in the labor market, indicating that the inclination towards easing policy still exists." Aroop Chatterjee, strategist at First National Bank, emphasized that the latest readings on the labor market and inflation will be more crucial for the direction of the US dollar than Wednesday's policy decision. Gennadiy Goldberg, head of interest rate strategy at TD Securities, said, "We had expected an announcement in January, but it looks like the Fed decided to start reserve management purchases earlier. This announcement is more dovish for the market." Bart Melek, Global Commodity Strategist at TD Securities, said that this move is "similar to mini quantitative easing, even though these are liquidity measures." He added that overall, this rate decision day should be positive for gold in the short term. He also noted that the market expects the new Fed chair appointed by the Trump administration in May next year to likely be a "dove," which means gold will have good support until early 2026.