[ET Net News Agency, 11 December 2025] The US Federal Reserve announced a 25 basis point
rate cut, in line with market expectations, but surprised investors by revealing it will
begin purchasing short-term Treasuries as soon as tomorrow, with a monthly pace of USD 40
billion in the near term. US equities rallied overnight, boosting Hong Kong stocks at the
open. However, the HSI failed to hold early gains as selling emerged at higher levels,
narrowing its midday rise to just 22 points. Nip Chun Pong, the Chief Strategist at Solo
Securities, told ET Net News Agency that with the year-end approaching, investors are
inclined to take profits on strength, leading to today's pattern of opening higher but
closing lower. In the near term, he sees the HSI trading between 25,550 and 25,750, with
the 100-day moving average (around 25,800) presenting significant resistance.

"If Trump's dove takes the helm, at least four rate cuts seen next year"

At its final meeting of the year, the Fed cut rates by 25bps as expected, bringing the
target range to 3.5-3.75%. However, the dot plot showed policymakers expect just one
further 25bps cut in 2025, less than the two cuts previously anticipated by the market.
Nip commented that the current rate path is only of limited reference value, as a
leadership transition is scheduled for May next year, which could bring a markedly
different approach to rate policy.
Kevin Hassett, a leading candidate to succeed as Fed Chair, has previously said there is
ample room to cut rates. Reports suggest President Trump and Treasury Secretary Bessent
are in the final round of interviews for the next Chair. Nip noted, somewhat jokingly,
that Trump's chief criterion for the next Chair is the frequency of rate cuts. If true, he
expects only one cut before May, after which the pace would accelerate under a new Chair,
forecasting at least three additional cuts, with five as the most optimistic scenario. Nip
explained that current Chair Powell stated in his press conference that US inflation is
not expected to peak until Q1 next year, reducing the likelihood of a rate cut in January.

"Asset purchases likely to continue into Q3 next year, with potential for larger scale"

The Fed will commence short-term Treasury purchases tomorrow, buying USD 40 billion per
month in the near term. Chair Powell indicated that this elevated pace may be maintained
over the coming months to manage reserve levels and ensure ample liquidity in the money
markets. While this constitutes balance sheet expansion, Fed officials have characterised
it as reserve management operations (RMP), rather than a full-scale, stimulus-driven
quantitative easing (QE).
Nip pointed out that the USD 40 billion monthly pace is relatively small, prior rounds
of QE saw monthly purchases of USD 60 billion, and the first round during the financial
crisis reached USD 100 billion per month. The current move, he stressed, is not a de facto
QE, which typically occurs during major financial shocks, and he sees little chance of it
morphing into QE this time.
He added that, with the Fed just resuming purchases, the scale is understandably modest;
however, with US debt pressures mounting, future increases in the monthly purchase amount
cannot be ruled out. If, as Powell expects, inflation peaks in Q1, Nip foresees the pace
of purchases increasing from Q2 next year, though likely not exceeding USD 60 billion per
month. If the short-term purchases have a manageable impact on rates, the Fed may shift to
buying longer-dated Treasuries, especially those with maturities of five years or less.
Buying ten-year or longer bonds, which have a bigger impact on yields, is less likely. In
terms of duration, Nip expects the purchase programme to last at least until Q3, with any
extension into Q4 depending on economic conditions.
As for the impact on the Hong Kong dollar, Nip sees little direct effect, as the
operation is expected to have only a limited impact on US equities, with markets more
focused on rate cut signals. He also noted that since early 2022, there has been a
positive correlation between Fed asset purchases and yields; more purchases have sometimes
been interpreted by the market as a sign of US economic weakness, which does not
necessarily support bond prices.