Tonight marks the Federal Reserve’s final interest rate meeting of the year, with the rate decision to be announced at 3:00 a.m. (UTC+8) on Thursday, followed by a monetary policy press conference by Fed Chair Jerome Powell at 3:30 a.m. (UTC+8). According to CME FedWatch, there is an 87.6% probability of a 25 basis point rate cut, making a cut tonight almost certain. However, the biggest focus this week is not on the rate cut itself, but rather on whether the Fed will inject new liquidity into the market and how increasing "politicization" and divisions among Fed officials may reshape monetary policy direction heading into 2026.

Markets are watching to see if the Fed will signal "balance sheet expansion" after the rate decision. With the quiet halt of quantitative tightening, how the Fed manages its massive balance sheet and whether it will inject new liquidity into the market has become key. Bank of America’s Global Rates Strategy team said last Friday that they expect the Fed will announce this week that, starting in January, it will purchase $45 billion per month of Treasury bills with maturities of one year or less as part of its "reserve management operations."

This week’s Fed meeting is also expected to be one of the most contentious in recent years, akin to a "political stress test," as divisions among policymakers on the rate cut outlook are set to reshape the U.S. monetary policy landscape for 2026. Of the 12 voting members of the Federal Open Market Committee (FOMC), five have expressed opposition or skepticism toward further easing, while three members of the Board of Governors support a rate cut, further fueling market narratives that the Fed is becoming increasingly politicized. Since 2019, the Fed’s policy committee has never seen more than three dissenting votes in a single meeting, and such an occurrence has happened only nine times since 1990.