On Wednesday, the Federal Reserve, the central bank of the United States, announced the decision of the Dec. 17-18 meeting of its Federal Open Market Committee (FOMC) regarding interest rates.
According to the Fed’s FOMC Statement, although progress has been made on cutting inflation, it still remains higher than what they would like, which is “2 percent over the longer run” (they hope to get there by 2027). Anyway, to achieve their inflation target as well as meet their goal of maxium employment, the FOMC decided to lower the target range for the federal funds rate by 25 basis points (bps), thereby bringing it to 4-1/4 to 4-1/2 percent.
Although this move was widely anticipated by both the U.S. stock market and the crypto markets, the Fed’s signals for fewer rate cuts in 2025 shook investor confidence, resulting in broad declines across U.S. stock indices and cryptocurrencies.
At the FOMC press conference, Chair Jerome Powell said:
“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive … We can therefore be more cautious as we consider further adjustments to our policy rate.“
The “dot plot” is a chart the Federal Reserve uses to illustrate its officials’ expectations for future interest rates. Each “dot” on the chart represents one official’s forecast for where the federal funds rate—the Fed’s key benchmark interest rate—will be at the end of specific years, typically covering the near-term, medium-term, and long-term outlooks. The chart is updated quarterly and is closely monitored by markets because it offers insight into the Fed’s thinking about monetary policy.
In this case, the latest dot plot shows that officials now anticipate only two rate cuts in 2025. This is a significant change from September’s projections, where the dot plot suggested four cuts for the same year. By reducing the number of cuts they foresee, the Fed is signaling a more cautious stance on easing monetary policy, particularly as inflation remains above target and the economy remains resilient.
U.S. markets reacted swiftly to the Fed’s cautious stance, with major indices all closing sharply lower (as of 7:55 p.m. UTC on Dec. 18)
- Dow Jones Industrial Average (DJIA): Dropped -436.79 points (-1.01%) to 43,013.11
- S&P 500: Fell -67.20 points (-1.11%) to 5,983.41
- Nasdaq Composite: Slumped -252.96 points (-1.26%) to 19,856.10
- Russell 2000 (RUSS 2K): Declined -28.45 points (-1.22%) to 2,305.63
The VIX, a measure of market volatility, surged 10.52% to 17.54, reflecting increased investor anxiety.
Cryptocurrencies mirrored the weakness seen in traditional markets, with the total crypto market cap falling 4.1% to $3.78 trillion. Leading digital assets posted significant declines over the past 24 hours:
- Bitcoin (BTC): Down -3.1% to $103,155
- Ethereum (ETH): Fell -3.3% to $3,811.30
- Solana (SOL): Dropped -6.0% to $214.11
For investors, the focus will remain on inflation data, economic growth indicators, and how quickly the Fed adapts to changing conditions. In the near term, volatility may persist as markets digest the Fed’s cautious outlook and assess its implications for 2025 and beyond.
Read the full article here
