A recent Federal Reserve operation has left the market a bit confused. At the December meeting, they cut interest rates by 25 basis points as scheduled, while also announcing a reserve management plan to buy $40 billion worth of short-term government bonds each month. This seems contradictory, and as a result, the US dollar index immediately plummeted—down 0.59%, hitting a near seven-week low of 98.54.

The Fed claims this is just routine technical operation, nothing major. But economist Peter Schiff isn’t convinced; he bluntly stated, "I don’t care what they call it, it’s debt monetization, and it’s creating inflation." His words hit the mark. Traders are warning that this could be a replay of 2009—when the Fed bought $300 billion in long-term Treasuries, ultimately triggering an inflation storm.

From a technical perspective, the US dollar index had already formed a bearish flag pattern before the Fed’s statement, and it broke down as expected. On the 4-hour K-line chart, the Relative Strength Index (RSI) and MACD are both oscillating in negative territory, signaling a clear bearish trend.

Interestingly, the dollar’s reaction after this rate cut is completely different from previous ones. In September and October, the dollar managed to hold up after those rate cuts, but this time it was sold off immediately. The real turning point came during Powell’s press conference, when he said the actual employment situation might be closer to a monthly loss of 20,000 jobs. As soon as he said that, the dollar was hammered down.