Fed's Cautious Rate Cuts Spark Market Debate

In September 2024, the Federal Reserve initiated a rate-cutting cycle, lowering rates three times over the year by a total of 100 basis points to a range of 4.25%-4.5%. While this trajectory appears stable on the surface, the VT Markets research team highlights that factors like inflation rebounds, new government policies, and optimistic economic forecasts might compel the Fed to adopt a more cautious stance on its easing strategy.

The Federal Reserve’s “defensive” strategy, in this way, can be interpreted as either a “precise” market insight or a precautionary measure. The VT Markets Research Desk proposes the following perspectives for analysis.First, the Research Desk considers that during the December Federal Open Market Committee (FOMC) meeting, an 11:1 vote resulted in a rate cut to 4.25%-4.5%, aligning with market expectations. However, the updated dot plot projections surprised markets, slashing 2025’s expected rate cuts from four to two. Although this shift caused short-term market ripples, VT Markets suggests the slower pace reflects economic resilience and labor market strength. The Fed appears focused on avoiding over-stimulation and carefully balancing economic growth against inflation risks.The Summary of Economic Projections (SEP) reinforces the Fed’s cautious approach, with GDP growth forecasts for 2024 and 2025 revised upward from 2% to 2.5% and 2.1%, respectively. Core Personal Consumption Expenditures (PCE) inflation forecasts also rose from 2.2% to 2.5%. Fed Chair Jerome Powell highlighted these optimistic trends during the Fed’s press briefing, emphasising that reduced job market risks and declining housing inflation are pivotal in shaping future rate adjustments.As the Trump administration prepares to take office, the potential impact of its economic policies on inflation and rate cuts remains a focal poin

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Asian Stocks Fall as Fed Signals Slower Rate Cuts, Yen Dips After BOJ Keeps Rates SteadyThe U.S. Federal Reserve's hawkish shift, signaling a slower pace of rate cuts next year, triggered a decline in Asian stocks and a strengthening of the dollar. The Bank of Japan's decision to maintain interest rates also pushed the yen lower.
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