Looking at the Federal Reserve's recent probability forecasts makes it clear:

In January 2026, the probability of holding steady is as high as 75.6%, while the chance of a 25 basis point rate cut is only 24.4%. By March, the probability of no change drops to 46%, but the combined likelihood of a 25 basis point and 50 basis point cut is only 53.5%.

On the surface, this doesn't seem like bad news—no rate hikes and no large cuts, which sounds quite moderate. But the issue isn't that simple.

The Federal Reserve is currently stuck in a dead end. Inflation has eased but is still far from the target; employment data is weakening, yet economic growth is barely holding up. On one hand, inflation hasn't been fully tamed; on the other, employment is showing signs of fatigue. Under this contradictory situation, cutting rates could cause trouble, but not cutting would squeeze liquidity in the entire financial system. So, the current "standing pat" policy is less of a neutral stance and more of a helpless choice.

What the market truly fears isn't the rate hikes themselves but the persistence of high interest rates. Over time, chain reactions occur: first, the discount rates for all risk assets' future expectations are lowered, affecting profitability; second, borrowing costs remain high, forcing leveraged players to either top up margins or be forced to liquidate positions; finally, the overall liquidity environment remains tight. This is why, although the January pause appears moderate, it is actually not friendly to risk assets.