In the early morning of October 30 Beijing time, the Federal Reserve announced that it would lower the target range of the federal funds rate by 25 basis points to 3.75%-4.00%. This is the second consecutive interest rate cut since 2025, which is in line with the general market expectations. At the same time, the Federal Reserve clearly stated that it will end the balance sheet reduction plan on December 1, ushering in a new chapter of liquidity easing.

There was a divided vote on this resolution. Federal Reserve Governor Milan advocated a 50-basis-point rate cut, while Kansas City Fed President Schmid supported keeping interest rates unchanged. The statement shows that U.S. economic activity is expanding moderately, the unemployment rate has risen slightly but remains at a low level, and inflation, although still high, shows a downward trend. The Federal Reserve emphasized that it will closely monitor the employment and price goals and flexibly adjust policies based on economic data.

The operational details after the end of balance sheet reduction were announced simultaneously: the principal repaid from mortgage-backed securities will be reinvested in short-term treasury bonds, and all maturing principal of treasury bonds will be rolled over. Market analysts believe that this move will fill the liquidity gap in the repo market and ease financial market volatility. Combined with the dovish signals before the Federal Reserve’s interest rate meeting in December, the market predicts that a monthly treasury bill purchase plan of 45 billion U.S. dollars may be launched subsequently.