The Federal Reserve lowered interest rates by 25 basis points as expected, but it was not as hawkish as the market had anticipated.In the early hours of Thursday Beijing time, the Federal Reserve announced a 25 basis point rate cut and stated in its decision that it would initiate a $40 billion Treasury bond purchase program within two days. The New York Fed subsequently released a specific implementation plan.This is the first time since the liquidity crunch during the COVID-19 pandemic in early 2020 that such a measure has been directly written into the policy statement, which some analysts view as a clear dovish signal.Additionally, the dot plot shows that while 6 committee members supported keeping rates unchanged next year, only two voting members expressed dissent, which is lower than the hawkish lineup expected by the market.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e1a949cd-a722-432e-b69a-b10576fe6937.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e1a949cd-a722-432e-b69a-b10576fe6937.png"/> (Among the FOMC, 6 members opposed the rate cut, with 4 lacking voting rights)Although the market originally expected a &#34;hawkish rate cut,&#34; the actual results showed no additional dissenters and no higher dot plot, and the anticipated strong statements from Powell did not materialize. Wall Street analysts interpreted the Federal Reserve's decision as more dovish than expected.<h2>Dovish Signals Beyond the Rate Cut Itself</h2>Bloomberg's chief economist Anna Wong pointed out that the overall tone is leaning dovish, despite some hawkish undercurrents. The committee significantly raised growth expectations while lowering inflation outlooks, and kept the dot plot unchanged.She expects the Federal Reserve to cut rates by 100 basis points next year, rather than the 25 basis points indicated by the dot plot, citing expectations of weak wage growth and almost no signs of inflation rebound in the first half of 2026.David Mericle, head of U.S. economic research at Goldman Sachs, stated:<blockquote>The decision contains many subtle hawkish elements, but overall it aligns with expectations.</blockquote>He noted:<blockquote>There are 6 committee members in the dot plot who hold hawkish dissent for next year, more than we anticipated. However, the Federal Reserve announced the resumption of bond purchases to maintain balance sheet stability and directly wrote this into the statement, which is unusual.</blockquote>Goldman Sachs macro forex researcher Mike Cahill focused on labor market forecasts, noting that the committee maintained its fourth-quarter unemployment rate expectation at 4.5%, indicating that growth will slow compared to recent trends.He pointed out that the current U.S. unemployment rate is 4.44%, and reaching the median forecast would require adding less than 5 basis points per month, while 7 committee members expect it to rise to 4.6%-4.7%, which is more in line with recent averages.<h2>Treasury Bond Purchase Plan Draws Attention</h2>Bloomberg interest rate strategist Ira Jersey questioned the Federal Reserve's management strategy for reserves. He stated:<blockquote>The reserve balance is either sufficient or insufficient. If the Federal Reserve wants to maintain a sufficient supply of reserves, it should consider using temporary open market operations during periods of declining reserve balances, rather than permanent operationsJersey pointed out that while it is necessary to understand the need for slow growth on the asset side, using traditional repurchase operations to calibrate reserve requirements is a reasonable way to adjust the scale of asset purchases.</blockquote>Matthew Luzzetti, Chief U.S. Economist at Deutsche Bank, expressed a desire to confirm with Powell whether the committee has taken into account the expected weakness in the employment data to be released next week.Raphael Thuin of Tikehau Capital believes that due to limited visibility on the data path, policymakers are forced to seek a balance between weak labor signals and demand that drives inflation down. The result is greater policy uncertainty, which could be a key driver of market volatility in 2026.<h2>Personnel Changes Add Policy Variables</h2>Jim Bianco of Bianco Research pointed out that the U.S. will welcome a new Federal Reserve Chair next year, which is a significant issue. The new chair may be seen as having a political agenda. He said:<blockquote>I had hoped to see more dissenters to indicate that the committee is ready to be a political counterbalance. But perhaps the FOMC members will do this after the new chair takes office, but that would look political since they did not act before the newcomer arrived.</blockquote>Seema Shah of Principal Asset Management stated:<blockquote>Given the recent scarcity of economic data and the significant divergence in expectations regarding the neutral interest rate, it is hard to imagine the Federal Reserve having any confidence in the economy to vote unanimously.</blockquote>Seema Shah expects the Federal Reserve to pause and assess the lagging effects of previous tightening policies. She said:<blockquote>While there may be some additional easing in 2026, the extent may be limited and dependent on greater confidence and evidence regarding the health of the U.S. economy.</blockquote>Richard Flynn of Charles Schwab UK pointed out that by taking action early, the Federal Reserve is sending cautious signals regarding the increasing downside risks amid ongoing global growth slowdown and policy uncertainty. He stated:<blockquote>For investors, this is a mild adjustment rather than a dramatic shift. While rate cuts may provide short-term support for risk assets and potentially drive a seasonal &#34;Christmas rally,&#34; volatility may remain high as the market assesses the impact on future policies and the broader economic outlook.</blockquote>Risk Warning and DisclaimerMarkets are risky, and investments should be made cautiously. 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The Federal Reserve announced a 25 basis point rate cut and launched a $40 billion Treasury bond purchase program, which the market interpreted as a dovish signal. Despite some hawkish elements, the overall tone is more dovish. Analysts expect a 100 basis point rate cut next year due to weak wage growth and insufficient signs of inflation rebound. Goldman Sachs pointed out that the Fed is purchasing bonds to maintain balance sheet stability, with the unemployment rate expected to remain at 4.5%

- The Federal Reserve lowered interest rates by 25 basis points, but the decision was less hawkish than market expectations.  
- The Fed also announced a $40 billion Treasury purchase plan, marking a significant dovish signal since the onset of liquidity issues during the pandemic.  
- Analysts interpret the overall tone as dovish, with expectations of further rate cuts next year, despite some hawkish elements in the decision.

Wall Street interprets the Federal Reserve's decision: more dovish than expected