Recently, a series of actions by the Federal Reserve are quietly changing market expectations. While restarting asset purchase programs to inject liquidity, they are also laying the groundwork for rate cuts. What will this combination of operations bring?

First, let's look at the scale of bond purchases. Market analysis indicates that the Federal Reserve will buy approximately $220 billion worth of short-term government bonds over the next 12 months. This plan was officially launched at the December meeting, with a monthly pace of about $40 billion, and in January, there will even be two intensive operations. The logic behind this is clear—the liquidity in the financial system is indeed tight, and reserve levels have fallen below "moderately ample."

The signal for rate cuts is even more straightforward. The meeting minutes show that there was broad consensus among decision-makers on the rate cut decision in December, with most people’s attitude being: as long as inflation continues to decline, further rate cuts are on the table. Although there is some debate internally about the pace, the direction is already very clear, pending confirmation from inflation data.

Economic outlooks should not be overlooked either. Officials generally expect the economy to accelerate growth by 2026, with economic activity approaching potential output levels. They believe that support from fiscal policy, adjustments to regulatory frameworks, and the currently relatively friendly financial market environment will all contribute to growth. Of course, there is still considerable uncertainty about the actual GDP growth rate—some are optimistic about growth driven by technological advances, while others worry about automation's impact on employment.

Overall, the Federal Reserve is continuously injecting liquidity into the market through a "dual approach" of expanding its balance sheet and cutting rates. Does this indicate that a new easing cycle is starting in 2026? For traders, these policy signals directly influence the direction of asset allocation adjustments.