TechFlow, December 16 — Chloe (@ChloeTalk1), author of the HTX DeepThink column and researcher at HTX Research, analyzed that although the Federal Reserve cut interest rates as expected and delivered a clearly more dovish signal than anticipated through both its dot plot and policy statement, U.S. financial markets did not see a consistent rebound in risk appetite. Instead, real-world challenges in the artificial intelligence sector continue to weigh on market sentiment, including valuation digestion pressure, extended capital expenditure payback periods, and rising uncertainty around earnings realization, leading to a complex divergence in the performance of U.S. equities and Treasuries.
In terms of bond market reactions, long-term Treasury yields rose overall this week, with the 10-year yield increasing by about 5 basis points during what is typically a "Fed rate-cut week." This counterintuitive move suggests that the market is not pricing the rate cut as the start of broad monetary easing, but rather reassessing inflation stickiness, Treasury supply pressures amid growing fiscal deficits, and the marginal impact of rate cuts on real economic activity and corporate earnings. From a pricing perspective, this appears more like an early discounting of "the effectiveness of accommodative policies."
The key determinant for market direction remains inflation data. The U.S. CPI year-on-year, core CPI year-on-year, month-on-month figures, and initial jobless claims released Thursday evening will serve as core pricing anchors for the dollar and risk assets. With CPI still around 3%, significantly above the 2% target, market focus has shifted from "whether to cut rates" to "whether rate cuts are justified and sustainable." If CPI comes in notably below expectations, it would further validate the Fed's current pivot toward easing, potentially putting downward pressure on the dollar and offering some recovery room for risk assets. Conversely, if inflation proves persistently high or sticky, the market may reevaluate the risks of "premature easing," leading to a potential dollar rebound and heightened volatility in interest rates and equity markets.
Overall, while the Fed has completed its policy directional shift, the market is still awaiting confirmation on whether this shift can truly translate into improved growth and stronger earnings. Against the backdrop of cooling AI narratives and sustained high volatility in long-term interest rates, markets are likely to remain focused on recalibrating prices around inflation data and policy expectations in the near term, rather than entering a clear one-way trend.
