At a critical moment, the Fed made major personnel changes.

Atlanta Fed President Bostic recently suddenly announced that he would retire at the end of his term on February 28, 2026. He stressed on the same day that inflation remains the main risk to the U.S. economy and said that he prefers to keep interest rates unchanged. This personnel change could affect the Fed's future policy direction.

The originally clear path to interest rate cuts became confusing overnight.

Bostic retired early, adding another variable to the Fed's policy

The decision comes at a timely moment: Fed headquarters is now approving a new five-year term for 12 regional Fed chairmen (starting March 1, 2025). It is widely believed that he voluntarily chose not to seek re-election to avoid potential controversy.

Bostic, 59, has been a key figure in the Fed's policy circles. In his latest speech, he made it clear that inflation remains the biggest threat to the U.S. economy and advocates keeping interest rates unchanged for the time being until there is sufficient evidence that inflation is steadily falling back to the 2% target.

He acknowledged that the current situation is complex: on the one hand, the labor market is slowing down, but on the other hand, inflation is still above ideal. Even so, he stressed that interest rate cuts must be cautious and warned: "Premature shift to easing may inject new blood into the 'beast of inflation' and shake the confidence of businesses and consumers in price stability."

Federal Reserve Chairman Powell praised Bostic as "steady and responsible", saying it was an honor to work with him; Bostic said he was proud of his achievements during his tenure.

It is worth noting that the timing of his departure is very sensitive - just a few months before the end of Powell's current chairman's term (May 2025). At present, the Fed is not only facing frequent changes at the top level, but also under pressure from politicians such as Trump to cut interest rates. Analysts believe that Bostic's exit will add new uncertainty to the already uncertain monetary policy outlook.

The Fed may soon resume bond purchases, while the White House calls for a sharp rate cut

New York Fed President John Williams (considered the "Fed's top three") recently said that the Fed may need to start buying U.S. Treasuries again soon - but not to stimulate the economy, but for technical considerations: to ensure that short-term interest rates can be effectively controlled.

He explained at the 2025 U.S. Treasury market meeting that the Fed is looking for an "sufficient" level of bank reserves to firmly control policy rates and keep money markets (such as interbank lending and repo markets) running smoothly.

He stressed that he will closely observe multiple market indicators, including the federal funds rate, repo market conditions and payment system data, to determine whether the banking system is short of money.

Recently, Wall Street has become increasingly concerned about money tightness in the money market. A number of major investment banks warn that if liquidity continues to be tight, the Fed may have to act faster than expected or even restart a bond purchase program that has been suspended for many years.

Williams also mentioned that the Fed's existing standing repo facility (SRF) facility is working well - eligible banks can quickly exchange assets such as Treasury bonds for cash. He encouraged banks to use boldly when needed without fear that "borrowing money from the Fed" would be seen as a negative signal.

At the same time, the White House made different sounds

On the same day, Kevin Hassett, director of the White House National Economic Council, publicly called for a larger rate cut. He is one of Trump's nominees for potential Fed chairman. "I think President Trump feels that interest rates can be lower, and I agree," Hassett said. ”

He personally believes that a 50 basis point rate cut should be made in December, but he expects the Fed to cut interest rates by only 25 basis points. He also revealed that he would accept the position if nominated as the next Fed chairman; If you are not elected, you will continue to stay in the White House and do your current job.

Key economic data may "disappear" in October

Due to the partial shutdown of the federal government, the US employment report for October and the consumer price index (CPI), two core data that measures the warmth and coldness of the economy, are likely not to be released.

White House press secretary Levitt bluntly said at a press conference last Wednesday: "Democrats may have permanently damaged the federal statistical system, and the CPI and employment data for October may never be released." ”

While some economic data can be supplemented and released after the government resumes operations, experts point out that the CPI and unemployment rate for October are most likely to be completely "missing" because they rely on on-the-spot collection at specific points in time and cannot be restored if missed. As of now, the BLS has not announced a new release schedule. One possibility is to combine the data for October and November to return to the normal rhythm as soon as possible, but the agency has not yet responded to media inquiries.

Levitt warned that the lack of this critical information will make the Fed "fly blindly" when making decisions. The Fed's next interest rate meeting is scheduled for December 9-10, when it will decide whether to cut interest rates for the third time this year.

Current market expectations (according to CME's "FedWatch tool") show that the probability of a 25 basis point rate cut in December is 59.4%, and the probability of keeping interest rates unchanged is 40.6%; By January next year, the probability of a cumulative rate cut of 25 basis points is 51.5%, and the probability of a 50 basis point rate cut is 25%.

If the October data is really "empty", the Fed will have to make major policy decisions with less information, increasing the risk of miscalculation.

How to maintain earnings in the "ambiguous period"?

In the past eight years, Powell has relied on "clear communication" to stabilize the market; But now, even he himself doesn't know where to go next.

For investors, this is not a question of predicting "whether to fall or not", but - in an era where uncertainty has become the norm, it is more important to learn to coexist with ambiguity than to bet on the right direction.

1. Short-term (before the December meeting): Lower directional bets

avoid heavy positions long/short on US dollars or US bonds; available options to hedge against rising volatility (VIX recent or rebound); Safe-haven assets such as gold and yen can be moderately allocated.

2. Medium-term (before 2026): Keep an eye on two variables

Whether Powell will be re-elected: If "dovish politicians" such as Hassett take over, the Fed's policy framework may be restructured; Inflation data recovery: If inflation rebounds after the November data is reissued, interest rate cut expectations will quickly reverse.