On December 18, the Federal Reserve concluded its two-day monetary policy meeting, announcing a reduction in the federal funds rate target range by 25 basis points, bringing it down to between 4.25% and 4.50%. This move comes amidst indications that the central bank expects potential reductions in interest rates to slow down, projecting that cuts may taper to as much as 50 basis points by 2025.

This marks the third consecutive interest rate cut by the Fed since September, a significant shift in policy aimed at bolstering the dual mandates of job support and inflation control while striving for economic stabilityFed Chair Jerome Powell articulated in a press conference that this adjustment, along with the previous cuts, is intended to ease monetary policy restrictionsAs a result of these measures, the federal funds rate has experienced a decline of one percentage point from its peak, reaching its lowest level in two years.

In the lead-up to this meeting, the Fed consistently reinforced its intention to slow down the pace of rate cuts

Powell emphasized a more cautious approach in future decisions regarding adjustments to policy rates, indicating that the central bank is nearing or at a moment of deceleration in its rate-cutting trajectoryHowever, this consensus was not unanimously supported among the Federal Open Market Committee (FOMC) membersNotably, Cleveland Fed President Loretta Mester expressed dissent, advocating for a pause in the reduction of rates.

The focus of market participants has increasingly centered around the projected frequency and extent of future interest rate cutsAccording to the Fed's latest economic outlook report, out of 19 FOMC members, ten anticipate that by the end of 2025, the federal funds rate target range will drop to between 3.75% and 4%. If rate cuts continue at a pace of 25 basis points each, it suggests a significantly slower trajectory than initially projected in September when four cuts were expected for the upcoming year.

Both Fed officials and market analysts have exhibited caution regarding the anticipated magnitude of rate reductions in the forthcoming year

• Russia's Economy Maintains Growth
• Market Pessimism Toward the UK Economy
• Challenges to U.S. Debt Sustainability
• Regions Target Strong Tourism Rebound
• Low-Altitude Economy: A Long-Term Outlook

Tools such as the CME FedWatch Tool—an indicator of interest rate expectations among traders—suggest that the likelihood of a further cut down to a range of 4.00% to 4.25% in January is only at 16.3%. This statistic underscores a widely held belief among investors that the Fed is likely to pause its rate-cutting strategy next month.

The hawkish stance adopted by the Federal Reserve has had tangible repercussions on the U.Sstock marketAs of the close of trading on December 18, the three major indices reported notable declines: the Nasdaq Composite fell by 3.56%, marking its largest single-day drop since July 25; the S&P 500 dropped by 2.95%, its greatest decrease since August 6; and the Dow Jones Industrial Average experienced a decline of 2.58%, marking ten consecutive days of losses—the longest streak since October 1974.

Some analysts contend that Powell’s recent comments signal that the Federal Reserve has entered a phase characterized by ambiguity and a lack of clear forward guidance, a condition detrimental to market stability

In the short term, with the Fed's unclear signals, the previously optimistic sentiment surrounding “holiday trading” in the stock market may dwindle, with increased volatility anticipated.

Currently, the Federal Reserve holds considerable potential for further rate cutsDespite three consecutive reductions, the federal funds rate remains elevated compared to rates in various advanced economiesAdditionally, the labor market has cooled from overheating conditions, and inflation appears to be nearing the 2% target.

However, the landscape may alter in response to policy measures introduced by the new U.Sadministration, which may reignite inflationary pressuresChanges in immigration policy could also exacerbate labor market conditions, which would compound the pressure on the Federal Reserve to adapt its monetary policy accordingly.

Outlook projections suggest that the Fed's interest rate cuts will primarily manifest in the first half of the coming year

This is largely contingent on anticipated decreases in inflation amid very high baseline figures from this yearWith the policies of the new administration still in their infancy, their full economic impacts might not yet be evidentNonetheless, as the year progresses and inflationary pressures mount, uncertainty surrounding U.Smonetary policy could heighten.

A variety of factors could lead to diminished effectiveness of looser monetary policy in stimulating economic activityNotably, the U.Scurrently faces rising deficits in both its fiscal and trade accounts, which cloak its economy in a veneer of health while simultaneously exposing underlying vulnerabilitiesThe anticipated economic policies of the new administration, which include slashing corporate taxes and boosting oil production, could bolster business conditions but also elevate inflation risks through related trade measures.

Ultimately, the outlook for the U.S