Decode foreign exchange platform analysis: Fed cuts interest rates by 25 basis points, Powell's speech shows a hawkish stance

On Wednesday (December 18), the Federal Reserve's 2024 annual interest rate decision ended.Decode Forex PlatformAccording to the analysis, the Federal Reserve decided to cut the base rate by 25 basis points to the range of 4.25% -4.50%, the third consecutive interest rate cut, in line with expectations.

"In considering the extent and timing of additional adjustments to the target range... the committee will carefully evaluate the follow-up data, the evolving outlook, and the balance of risks," the committee said in new language, meaning a pause in rate cuts is likely beginning with its Jan. 28-29 meeting.

The Fed currently expects them to make just two 25 basis point rate cuts by the end of 2025.

It was the first quarterly forecast since Trump won the presidency on Nov. 5, adding new uncertainty to the economic outlook as Trump campaigned on promises of tax cuts, higher tariffs and a crackdown on illegal immigration that some analysts believe will lead to inflation.

After the Federal Reserve cut interest rates, the dollar index hit a two-year high in intraday trading, rising 1.085% to 108.11 points. Spot gold fell below the integer level of $2,600 an ounce for the first time since November 18. After the Fed's decision, it fell by $37, or 1.73% in the day.

bitmap

The median value of the Fed's December dot plot shows that the Federal Reserve expects to cut interest rates twice in 2025, 25 basis points each time, and in September it is expected to cut interest rates four times, 25 basis points each time; the Federal Reserve expects to cut interest rates twice in 2026, 25 basis points each time, consistent with September expectations.

The Federal Reserve dot plot shows that among the 19 officials, 1 official believes that interest rates should not be cut in 2025, 3 officials believe that interest rates should be reduced by a total of 25 basis points in 2025, 10 officials believe that interest rates should be reduced by a total of 50 basis points in 2025, 3 officials believe that interest rates should be reduced by a total of 75 basis points in 2025, 1 official believes that interest rates should be reduced by a total of 100 basis points in 2025, and 1 official believes that interest rates should be reduced by a total of 125 basis points in 2025.

Powell speech

Mr. Powell said interest rate policy was at a new stage in the process of interest rate adjustment. We need to see inflation progress going forward and not overreact to months of inflation data. The resolution statement means that we are at or close to slowing the pace of interest rate cuts, or pausing the pace of interest rate cuts. We are closer to neutral [interest rates], which is another basis for us to become cautious. The timing [of policy action] means that we are at or close to slowing the pace of interest rate policy adjustments.

Mr. Powell said we had made considerable progress on inflation and remained confident that "inflation is on track to fall back towards the 2 per cent target", which is expected to be achieved over the next one to two years.

Federal Reserve Chairperson Jerome Powell said the committee is discussing how tariffs drive inflation, and the Fed has done a lot of work in this regard to be able to make a careful assessment of appropriate tariff policy. And said the 2018 tariff analysis is still a good starting point; there are many factors that will affect the impact of tariffs on consumer inflation.

Federal Reserve Chairperson Jerome Powell said it could take another year or two to reach the 2% inflation target. Inflation reflects the lifting of recent economic shocks and remains confident that inflation will reach 2%.

When asked about bitcoin reserves, Federal Reserve Chairperson Jerome Powell said he is not allowed to own bitcoin and does not want to change the law.

institutional perspective

"Fed Messenger" Nick Timiraos: The words "magnitude and timing" have been added to the Fed's policy statement, suggesting that it will slow the pace of rate cuts to modify potential adjustments.

According to analyst Catarina, Powell said that at this meeting, some people did take a very preliminary step to start including highly conditional estimates of policy in their forecasts. This is a shift from past meetings, where Powell has repeatedly emphasized that the Fed will not respond until policy is almost or fully in place. Trump has not even taken office yet, but some Fed officials have started to include potential policy.

Gennadiy Goldberg, Head of U.S. Interest Rate Strategy at TD Securities: The Federal Reserve has sent a signal that they are not going to be as dovish as they have been in the past, that they are leaning towards fewer rate cuts next year, and I think that is a signal that the market will continue to price in less than two rate cuts, and if the data is strong enough, it may move in the direction of zero rate cuts. If the Federal Reserve does not see inflation falling enough, they are not willing to continue to cut rates.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities: There were basically no surprises at the Fed meeting - a 25 basis point rate cut, suggesting only two rate cuts next year, and also suggesting a pause in rate cuts, possibly in January, possibly extending to Quarter 1. But now the market is turning downwards because the pace of rate cuts has slowed, the pause is coming, and the Fed is definitely considering the uncertainty of inflation.