Forget the Rate Cut: The Fed Just Started "Stealth QE" (Dec FOMC Analysis)
[Part 1] The Rate Cut That Felt Like a Warning
December 10, 2025. The final "Big Event" of the year, the December FOMC meeting, has come to a close. The world was watching, and the Fed delivered.
Let's get straight to the point. As the market anticipated, the Federal Reserve cut the benchmark interest rate by 25 basis points. This lands the target range at 3.50%–3.75%. Following cuts in September and October, the Fed has achieved a "Grand Slam" of three consecutive rate cuts.
On the surface, this should be a moment to pop the champagne. The logic is simple: "Rates are down, liquidity will flow, borrowing costs will drop, and stocks should rally!" However, the mood on Wall Street at the closing bell was entirely different. Instead of cheers, there was tension. Instead of conviction, there was doubt.
Why? While Chair Powell spoke the language of a "dove" (easing), the report card and roadmap he held were undeniably "hawkish" (tightening). Let's dissect the Fed's dual-faced approach and the three hidden key points you need to know.
1. The Myth of Consensus is Broken: Cracks in the Fed
The first and perhaps most serious number to look at is '3'.
This decision was not unanimous. Out of the 12 voting members, three dissented against Powell's decision. You might think, "What's the big deal with three votes?" But in the context of Fed history, this is significant.
To minimize market uncertainty, the Fed typically presents a united front—unanimous votes or, at most, one dissenter—even after heated debates. This time, however, we witnessed the largest collective dissent since 2019.
This rebellion of three votes sends a clear signal: Even within the Fed, views on the current economy are sharply divided.
🔴 The Hawks: "Inflation isn't dead yet. If we cut too fast and prices spike again, then what? We should have paused."
🔵 The Doves: "The labor market is cooling visibly. We shouldn't be cutting by just a quarter-point; we need to be more aggressive to defend the economy."
This tug-of-war proves that the US economy is standing precariously at an "Inflection Point." Trying to tame inflation hurts growth; trying to save growth risks inflation. The path forward is not the "Smooth Path" Powell promised, but likely a bumpy off-road track.
2. The Betrayal of the Dots: "Don't Expect Much Next Year"
The biggest curveball for investors was the revision of the 'Dot Plot'—the chart where Fed members map out their future rate expectations.
Just three months ago in September, the market was full of hope, pricing in at least 3 to 4 cuts for 2026. The belief was that a full "Rate Cut Cycle" had begun.
But when the lid was lifted, the result was shocking. The median projection for 2026 rate cuts shrank to just '1' cut.
This was the Fed's excuse and its confidence. Chair Powell emphasized in his press conference, "Growth is running above potential, and unemployment remains historically low."
In other words, "The economy is running fine on its own, so why should we rush to provide life support?" The market has coined a new term for this: a "Hawkish Cut." The action (the cut) soothed the market, but the message (the outlook) remained strict.
For investors, "Good News" (a strong economy) has ironically morphed into "Bad News" (rates staying higher for longer).
3. Reinterpreting the 'Neutral Rate': The End of Cheap Money
Finally, we must address the concept of the 'Neutral Rate' (r*)—the interest rate that neither stimulates nor slows down the economy.
Powell dropped a bombshell:
The implication is heavy. It declares that the current rate level (mid-3% range) is not "high," but rather "the normal rate we must adapt to."
We have been conditioned by over a decade of zero or near-zero interest rates. Cheap loans were a given; low savings yields were expected. But the Fed's "New Normal" is different.
- The End of the Zero-Rate Era: Those days are likely gone for good.
- Changing Investment Calculus: The old formulas—"Buy bonds because rates will keep falling" or "Give growth stocks high valuations because capital is cheap"—are breaking down.
If there is only one cut next year and we are already at "neutral"... can current stock valuations be justified? Are we entering 'High for Longer: Season 2'?
[Interim Summary] Don't Panic Yet: There is a Hidden Card
Reading this far might feel suffocating. "No more cuts, internal fighting, and the end of cheap money... should I sell everything and run?"
Hold on. It is too early to be disappointed.
Jerome Powell is a master strategist. While he held a whip (slow cuts) in one hand, he was hiding a massive 'carrot' in the other.
It didn't make the main headlines, but there is a catalyst far more powerful than a 0.25% cut: The immediate End of Quantitative Tightening (QT) and the start of 'Stealth Quantitative Easing (QE).'
Why is this more important than the rate cut? And how will it lift the market next year? I will uncover this shocking truth in Part 2.
[Part 2] The Fed's Secret Pivot: The "Stealth QE" Spigot is Open
In Part 1, we looked at the Fed's strict report card: "Only one cut next year." On the surface, it looks like a wet blanket for the stock market. However, the real "Players" on Wall Street weren't cheering for the rate decision. They were cheering for a single line in a separate statement:
The power of this sentence is immense. It's not in Economics 101 textbooks, but the Fed has turned the tap back on for 'Liquidity'—the lifeblood of financial markets.
If interest rates determine the "price of money," liquidity determines the "quantity of money." Even if the price is a bit high (high rates), if the market is flooded with cash (liquidity supply), asset prices have no choice but to rise. Let's dig into the three truths hidden in this secret drama.
1. Learning from Trauma: Why Kill the 'Vacuum Cleaner' Now?
First, let's simplify Quantitative Tightening (QT).
To save the economy during the pandemic, the Fed printed massive amounts of money. For the past two years, they have been taking it back. By selling bonds or letting them mature, they sucked about $60B to $95B out of the market every month. Think of it as a giant 'Financial Vacuum Cleaner.'
But in December 2025, the Fed suddenly pulled the plug on this vacuum.
The timing is surprising. Most Wall Street experts expected QT to end sometime in the first or second quarter of next year. But the Fed moved much faster. Why the rush?
It stems from the trauma of the 'Repo Crisis' of September 2019.
The Nightmare of 2019: Back then, the Fed insisted the economy was strong and pushed QT too far. Suddenly, cash dried up in the Repo market (where banks lend to each other). Short-term rates spiked to 10% overnight. The financial system nearly had a heart attack.
Powell remembers that mistake vividly. "Fixing it after it breaks is too late. We need to grease the gears before they seize."
So, while pretending to be tough on the surface ("Rates will come down slowly"), he has preemptively injected 'Liquidity Coolant' into the back of the engine to prevent a system failure.
2. RMP: 'Stealth QE' by Another Name
The Fed didn't just stop sucking money out (ending QT). They moved to actively pumping money in.
They announced they would buy $40 billion (approx. 52 trillion KRW) of Treasury Bills (T-bills) every month starting Dec 12. They call this 'Reserve Management Purchase (RMP).'
The Fed drew a line in the sand:
"Don't get this wrong. This is not QE to stimulate the economy. It's just a technical measure to ensure the banking system runs smoothly."
But market participants call it 'Stealth QE.' Like a stealth fighter invisible to radar, it doesn't wear the 'QE' nametag, but the effect is identical: Money printing.
Imagine this: $40 billion flows from the Fed's vault into the market every month.
- The Fed buys T-bills.
- Financial institutions (banks) sell the bills and receive Cash.
- This cash piles up in Bank Reserves.
- With ample reserves, banks can lend more easily or invest in other assets.
- Ultimately, this money circulates and acts as a floor supporting Stocks, Bonds, and Real Estate.
In short, this is a sophisticated double play: "Tie the right hand (Rates/Price) to fight inflation, but untie the left hand (Liquidity/Quantity) to prevent a market collapse."
3. Powell's Big Picture: The Ultimate Insurance Against Trump 2.0
Why play such a complex game? Is it just to avoid repeating 2019?
Many macro experts see a chilling 'Political Calculation' here. The variable is the incoming 'Trump 2.0 Administration' in January.
President-elect Trump has already declared:
"I will raise tariffs on all imports and increase fiscal spending."
Economically, these two policies are clear 'Inflationary Drivers.' Tariffs raise import prices; fiscal spending floods the economy with cash.
For the Fed, this is the biggest risk. If they cut rates to 2% now because the economy is cooling, and then Trump's policies spike inflation back to 4-5% next year, what happens? The Fed would have to hike rates aggressively again. Their credibility would be destroyed.
So, Powell designed a 'Hedging Strategy' to cover both sides.
- 🛑 Strategy A (The Brake): Slow Rate Cuts
Keep rates in the mid-3% range. This leaves 'Policy Room' to react if Trump-flation hits next year. - 🚀 Strategy B (The Gas): Liquidity Supply (RMP)
Instead, quietly pump money through the back door to ensure high rates don't break the economy or cause a financial accident.
It's the essence of a 'Wait & See' approach: driving a winding mountain road with the left foot on the brake and the right foot on the gas, ready to react instantly.
Now the puzzle fits. Why only one cut next year? (Inflation Defense). Why end QT and start printing? (Recession Defense).
The table is set.
"Rates are high, but Money is everywhere."
In this strange 'High Rate + High Liquidity' regime, what should investors buy? In Part 3, I will provide a concrete, battle-tested investment strategy for 2026.
[Part 3] "The Money is Loose" – 2026 Survival Investment Strategy
Through Parts 1 and 2, we have completely deciphered the Fed's true intentions.
This is the core message of the December FOMC and the mega-theme for 2026. Enough with the macro study. Now, the practical question: 'How should I manage my portfolio tomorrow?'
On this mat of 'High Rates + High Liquidity' rolled out by the Fed, where should we place our bets? Here is the strategy to maximize your win rate in 2026.
This is what the market wants and currently the most likely scenario. 'Goldilocks' refers to an economy that is not too hot (inflation) and not too cold (recession).
[The Mechanism]
The $40 billion/month liquidity from the Fed acts as lubricant for the economic engine. Add to this the Trump administration's 'Deregulation' and 'Corporate Tax Cuts' coming in January, and corporate earnings power could explode.
In this scenario, it doesn't matter if rates stay in the mid-3% range.
"Who cares if loans cost 5%? My business is making 15% returns!"
This is what we call an 'Earnings Market.'
[🎯 Investment Targets]
- ① Financials (Banks/Brokers): The biggest beneficiaries of deregulation. Trump will loosen the shackles, and Fed liquidity increases lending capacity. High rates protect Net Interest Margins (NIM), while liquidity boosts volume. It's a "Win-Win" for banks.
- ② AI & Big Tech: "Stop investing, and you die." This is the law of the jungle for Big Tech. Despite high rates, they hold massive Cash piles, so interest costs are irrelevant. Liquidity encourages aggressive CAPEX (Data Centers). The rally for leaders like Nvidia and Microsoft is not over.
- ③ Small Caps (Russell 2000): Pay attention here. Small companies starved for capital need the Fed's liquidity like oxygen. If we grow without a recession, these undervalued small caps could snap back the hardest (Catch-up Rally).
The 'Plan B' every investor must prepare for. This is where Trump's 'Tariff Bomb' becomes reality, immigrant deportations raise wages, and dead inflation wakes up.
[The Mechanism]
If inflation metrics pop back to 3-4%, the Fed will reveal its 'Hawkish Instincts' from Part 1. They might cancel the "1 cut next year" promise, freeze rates, or even threaten to hike again.
[🛡️ Defensive Targets]
- ① Brands with 'Pricing Power': You need companies that can say, "Sorry, price going up," and consumers still open their wallets.
Examples: Coca-Cola (Staples), Apple (Cult fandom), Netflix (Irreplaceable platform).
Avoid low-cost competitors that lose customers if they raise prices by a cent. - ② Energy & Commodities: Inflation means the value of real assets rises. Oil, Copper, and Power Infrastructure stocks are mandatory 'Inflation Hedges' for your portfolio.
- ③ Caution on Long-Term Bonds: blindly holding Long-term Treasuries (like TLT) hoping "rates will fall eventually" is dangerous. If reflation hits, bond yields will spike (prices crash). Position sizing is critical.
3. Changing Rule #1: 'Cash' over 'Dreams'
It is true that money is circulating due to the Fed's actions. But never forget: Base rates are still high.
A 3.5% Fed rate means companies pay 5-7% interest on actual loans. In the zero-rate era (2020-2021), you could lose money and say, "I have tech that will change the world!" and your stock would 10x. That was the era of 'Dream-eating companies' (unprofitable growth).
2026 is different. Money is expensive. Liquidity waves are coming, but boats with holes (bad financials) will sink, not float. Before you hit the buy button, check these two financial metrics.
Question: "Can you pay your interest with your operating profit?"
If operating profit is less than interest expense (Ratio < 1), that company is a ticking time bomb. Ignore the chart, no matter how pretty it looks.
Question: "After paying wages and investing, is there actual cash left?"
Look for companies where actual cash hitting the bank account is positive (+), not just accounting profit. In a high-rate era, Cash is both a weapon and a shield.
Only companies meeting these conditions will ride the Fed's liquidity wave. The market is entering 'The Great Divergence.' Winners will keep winning; losers will be permanently left behind.
4. Conclusion: Don't Be Scared, But Don't Get Drunk
To wrap up this long series, here is the Fed's announcement in one sentence:
Do not be afraid. The scariest enemy, 'Recession Fear,' has vanished. By buying T-bills, the Fed has shown a strong will: "We will not tolerate a system collapse." This alone is reason enough to stay in the stock market.
But do not get excited either. Interest burdens remain too high to expect a 'Mindless Rally.' Stock prices will now rise strictly for companies that prove themselves with 'Numbers.'
Readers, this is not the time to lose sleep over daily macro news headlines.
Instead, open your portfolio. It is 'Golden Time' to check if your holdings have the stamina (Cash Generation) to survive this strange 'High Rate + High Liquidity' environment.
The Fed has opened its wallet. Finding the 'Real Companies' capable of taking that money is now entirely up to you.
I wish you a successful investment year in 2026.
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