On December 18, amidst the imposing presence of a hawkish Federal Reserve, U.Sstock markets faced a steep downturn, with all three major indices plummeting by over 2%. The Dow Jones Industrial Average endured its longest losing streak since 1974, marking ten consecutive trading days of decline.

At the closing bell, the Dow dropped by 2.58%, closing at 42,326.87 points, while the S&P 500 slid 2.95% to settle at 5,872.16 pointsThe Nasdaq composite faced the most significant decline, falling by 3.56% to 19,392.69 pointsTesla, which had recently been gaining momentum, saw its stock price crash more than 8%, a stark contrast to its previous record high of $488.54.

In the wake of the Federal Reserve's interest rate decision, U.Sgovernment bonds suffered a significant decline, triggering an uptick in yieldsThe yield on the 10-year Treasury note surged to 4.51%, its highest point since late May, finishing with an increase of 10.7 basis points at 4.492%. Concurrently, the U.S

dollar index reached a peak of 108.26, the highest level since November 2022, closing the day up by 1.08% at 108.08. Gold and Bitcoin also faced turmoil: gold prices plummeted to a one-month low with a 2.2% drop, ending at $2,587.63 per ounce, while Bitcoin temporarily dropped by 5.3% to $100,752, following its previous ascent beyond $108,000.

The Federal Reserve's unexpected decision to cut interest rates by 25 basis points on December 18 came as a measure in line with market expectations, adjusting the federal funds rate target range to 4.25%-4.5%. This marked the third consecutive rate cut following reductions of 50 basis points in September and 25 in NovemberAdditionally, the Fed decreased the reverse repurchase agreement rate from 4.55% to 4.25%, an adjustment exceeding that of the funds rate.

While the rate cut itself did not surprise many, the hawkish signals released alongside it anxious Wall Street

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The latest dot plot indicated that policymakers expect two rate cuts in 2025, a significant contraction from the previous projection of up to four cuts anticipated for next year shared back in SeptemberAdditionally, the medium-term expectation for the federal funds rate was bumped up from 2.9% to 3%.

According to Dean Maki, Chief Economist at hedge fund Point72, the Fed is moving increasingly close to the anticipated neutral rate level, a crucial factor in possibly slowing down the pace of future rate cutsThe Fed also elevated its GDP growth outlook for the next two years while lowering its unemployment rate forecasts and increasing inflation expectations for 2024-2026.

During the press conference that followed the interest rate decision, Fed Chairman Jerome Powell repeatedly urged for cautious actionHe highlighted that the Federal Reserve has lowered its policy interest rate by a full percentage point from peak levels, indicating a significant easing of restrictive monetary stance

Consequently, Powell signaled a more judicious approach for any future interest adjustments.

Despite the rate cut in December, Powell characterized it as a challenging yet appropriate decisionHe elaborated on the necessity of balancing the risks: being excessively gradual could harm the labor market, while being overly aggressive could jeopardize the progress made in inflation controlHence, the Fed is striving to find equilibrium between these two critical risks.

As the U.Spursues an aggressive tariff agenda, economists broadly perceive the possibility of inflation lifting once moreFederal Reserve officials are increasingly contemplating the ramifications of potential comprehensive economic policy shiftsPowell indicated that there has been preliminary assessment regarding how tariffs might influence inflation, but the outcomes remain unclear.

When addressing the future trajectory of monetary policy, Powell acknowledged that the Fed is at a juncture where it may start to decelerate interest rate cuts, stressing that any future decision regarding rates in 2025 would hinge on upcoming data rather than the current economic landscape

As the Fed seeks to maintain a robust labor market while reducing inflation to 2%, the possibility of rate hikes next year seems improbable.

The dual objectives of inflation control and job creation remain the focal point for the Federal ReservePowell voiced an acute awareness of rising prices affecting consumers, particularly in categories that include food, transportation, and heating costsThis global inflation surge has wrought substantial hardshipEven with substantial decreases in inflation levels, consumers continue to feel pressure from elevated prices, reflecting the stark reality of their financial experiences.

Regarding the labor market, Powell noted, “There are various indicators suggesting a cooling labor market, albeit not at an alarming rate,” expressing little cause for considerable concernGiven the overarching conditions of inflation and employment, the pathway for continued interest rate reductions appears to simply be slower rather than at a full stop