Fed Balance Sheet Operations May Shape Liquidity More Than Rate Cut This Week

The Federal Reserve's policy meeting this week may prioritize liquidity injections through balance sheet operations over an anticipated rate cut, market analysts said. Bank of America's global interest rate strategy team expects the Fed to announce purchases of Treasury bills with maturities of one year or less at a pace of $45 billion per month starting in January, described as "reserve management operations." Vanguard's Roger Hallam projects a slower start of $15 billion to $20 billion monthly in late Q1 or early Q2 2025. PineBridge anticipates a 25 basis point rate cut on December 10, bringing the policy rate to a 3.5%-3.75% range, closer to the historical neutral rate of approximately 3%, Jinshi reports.