The Federal Open Market Committee (FOMC) released its last monetary policy statement for 2025.  It wasn’t a certainty, but it was widely expected that the Fed would cut the federal funds rate by 25 basis points, and that’s exactly what it did.

There were three dissenting votes.  Two Fed members wanted to hold the target rate steady, while one member wanted a half-point (50 basis points) cut.

Opinions still vary on what the Fed will do in 2026.  Of course, this is based on the current data, which isn’t all that current with some government statistics being delayed.  And things can change very quickly.

But the small cut in the federal funds rate isn’t the big story.  The Fed announced that, beginning in two days, it will begin buying $40 billion in short-term bills.  They are calling this “maintenance”.  Maybe by maintenance they mean maintaining the illusion of our bubble economy.

Federal Funds Rate Problem?

One of the reasons for the buying of short-term Treasury bills is to keep the federal funds rate in the new range of 3.5 to 3.75 percent.

The actual FOMC statement is more subtle.  It states: “The Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis.”

Since the fall of 2008, the Fed has been able to manipulate the federal funds rate by paying banks interest on their reserves.  It’s been a good deal for the big banks, and it’s been a good deal for the Federal Reserve. That sounds about right.

But it seems that the rigged game has to be altered now.  It is possible that the Fed is having trouble maintaining the federal funds rate without actually creating new money out of thin air.  This is one of the reasons they will be buying new debt, which means that the money supply will once again increase.

The 12 Days of Stable Money

The Fed didn’t give us the 12 days of Christmas this December, but it did give us the 12 days of stable money. Or maybe it will just be 11 days.

From the late October meeting, the Fed announced it would be winding down its quantitative tightening.  Starting December 1, all Fed holdings would be rolled over as they matured.

With the latest Fed meeting, they will begin buying Treasury securities on December 12.  This is a return to quantitative easing (QE), also known as digital money printing.  They can call it reserve management purchases or whatever they want, but it appears to be more money printing.

So, we got a stable money policy of no monetary inflation or deflation from December 1 to December 12.  They couldn’t even wait a full 2 weeks from quantitative tightening to quantitative easing.

Problems?

Why is the Fed already returning to QE?  Is it just to maintain the federal funds rate?  If that’s the case, then it is a good indication they shouldn’t be lowering rates right now if they can only maintain it through more monetary inflation.

(While the market should determine interest rates and there should be no Federal Reserve, I am writing this from the basis that we currently do have a central bank.)

The Fed’s supposed price inflation target is 2%.  Even going by government statistics, we haven’t seen 2% in several years.

If the economy is relatively strong and consumer price inflation is still above 2%, why is the Fed cutting rates?  Why is the Fed returning to QE?

It just tells you that something is going on, and they know something is going on.  There are major underlying problems in the economy.  The yield curve was inverted for about 2 years.  With the latest cut in short-term rates, it is normalizing more.  We are facing a recession ahead.  We are in a major bubble, and I think some Fed members sense this.

I don’t think these decisions are purely political.  The dissenting vote who wanted to lower the target rate by 50 basis points was probably political.  Fed officials see trouble ahead, but they don’t want to announce it to everyone.  Then they will just get blamed for panicking the market.

It has not been uncommon for the Fed to cut rates before a recession becomes evident.  If history is any guide, we are on a path to recession right now.  Maybe we are already in it.  The Everything Bubble could implode.

They can fudge the statistics all they want, but there are some numbers and prices that can’t be hidden.  Some of the Fed members sense there is trouble ahead.  It would be wise to pay attention.  Why would they be cutting rates and returning to QE if there weren’t serious problems out there?