Fundstrat Tom Lee: FOMC Expected to Maintain Interest Rates or Resume QT
Fundstrat Tom Lee stated that the FOMC meeting today is expected to keep interest rates unchanged. The team reviewed comments from 12 voting members since the June meeting, with 3 leaning hawkish, 2 leaning dovish, and Warsh holding a neutral stance.
The FOMC may announce a resumption of quantitative tightening, with the current balance sheet reduction rate at zero. This move is akin to an invisible rate hike without initiating formal tightening, and the new Federal Reserve's uncertainty may restore market visibility after the statement.
Under event-driven conditions, funds may flow back into risk assets, particularly AI lagging stocks benefiting from valuation recovery, while those with overly high expectations for rate hikes may face pressure.
Source: Public Information
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Tom Lee has previously emphasized in Fundstrat reports the impact of the Federal Reserve's communication style changes on market pricing. After the end of QT in late 2025, it will shift to reserve management purchases to maintain sufficient reserves, with its path always tracking liquidity tools rather than simply the interest rate dot plot.
On the capital path, resuming QT could further shrink the balance sheet from the current approximately $6.7 trillion, motivated by tightening financial conditions without adjusting policy interest rates, avoiding the market's violent reaction triggered by formal rate hikes, while echoing new Chairman Warsh's orientation to reduce forward guidance.
Similar cases can be seen in the QT cycle from 2022-2025 and the policy tool combination during Powell's era. The current Federal Reserve is transitioning from interest rate dominance to balance sheet dominance, with the industry position closer to controlling liquidity rather than directly suppressing growth.
This essentially represents a transfer of pricing power: policy signals shift from the interest rate path to implicit balance sheet reduction, with the mechanism being that after the new chairman reduces visibility, expectations are rebuilt based on the event itself, shifting the market from speculating on rate hikes to repricing liquidity premiums.
ABAB News · Cognitive Law
When interest rates are unchanged, balance sheet reduction is the real tightening.
With visibility at zero, the event itself is the pricing.
Tool switching determines the allocation of risk premiums.