The US Federal Reserve cautiously adjusted the pace of interest rate cuts, and the volatility of global financial markets intensified

The Federal Reserve recently released the minutes of its December 2024 monetary policy meeting, which not only reveals the Fed's deep insight into the current economic situation, but also indicates a major adjustment in the future direction of monetary policy. In a decision that has sent shockwaves through global financial markets, Fed officials have reached a consensus that they have reached or are close to the tipping point of slowing the pace of interest rate cuts in the face of a significant increase in upside risks to inflation.

The minutes made clear that almost all officials at the meeting expressed deep concern about high inflation in the US and that "the upside risks to the inflation outlook had strengthened". This judgment is not unfounded, but based on a deep analysis of the US economic data. While inflation has slowed sharply since its peak in 2022, it remains well above the Fed's long-run target of 2 percent. Such high inflation not only erodes consumers' purchasing power, but also poses a potential threat to stable economic growth.

Against this backdrop, Fed officials agreed that slowing the pace of monetary policy easing has become a top priority. They pointed out that although there have been several previous interest rate cuts to stimulate economic growth, in the face of inflation persistence and uncertainty, future monetary policy decisions must be more cautious. This attitude was further emphasized in the press conference of Federal Reserve Chairman Jerome Powell. He made clear that, as inflation risks and uncertainties remain high, the FOMC expects to slow further adjustments in the policy rate going forward to be consistent with firmer inflation expectations.

It is worth noting that at the Federal Reserve's monetary policy meeting on December 17-18, 2024, it decided to further lower the target range for the federal funds rate by 25 basis points to between 4.25% and 4.5%. This is the third consecutive rate cut since September last year, bringing the cumulative reduction to 100 basis points. However, compared with the past, the interest rate cut behind it revealed a stronger "hawkish" meaning. At the same time, the Fed said that it expects the rate cut in 2025 to be narrowed to 50 basis points, which is much lower than the market's consensus expectation, reflecting the Fed's cautious attitude towards the future economic situation.

The policy plans of the new US administration also add more uncertainty to the Fed's anti-inflation course. According to Reuters and Agence France-Presse, Fed officials at the meeting took note of recent "higher-than-expected inflation data" in the United States and were concerned that the new administration's trade and immigration policies could prolong the fight against inflation, slow economic growth and increase unemployment. This concern is not unfounded, as the new administration has made it clear that it will impose tariffs on imports from trading partners and tighten immigration controls, measures that will undoubtedly increase the cost of imports and wages, thereby driving up inflation.

In fact, data from the U.S. Department of Labor supports this concern. In November 2024, the US consumer Price Index (CPI) increased by 0.3% month-on-month, 0.1 percentage points higher than in October; The year-over-year rise in the core CPI, while unchanged from the previous month, remains above the Fed's long-term target. This data shows that despite the Federal Reserve has taken a number of interest rate cuts, inflation pressures are still present and even stronger.

In global financial markets, the expected slowdown in the pace of Fed rate cuts has undoubtedly had a profound impact. The bond selling wave continued, the stock market was under pressure, and the dollar index rose significantly. The yield on the benchmark 10-year Treasury note briefly rose to its highest since April 2024, while government bond yields in countries from the UK to Japan also hit new highs. This trend has not only increased the volatility of global financial markets, but also had a serious impact on investor confidence.

In the stock market, the global stock market sentiment was subdued due to the sell-off in the bond market. In New York, the three major stock indexes were mixed after the minutes were released, while Asian markets also fell in the following trading session. In addition, international oil prices also fell, reflecting market concerns about the future economic outlook.

In the dollar, the dollar index rose sharply after the minutes as expectations of a slower pace of Fed rate cuts reduced expectations of future monetary easing. This trend has not only exacerbated the volatility of global currency markets, but also had a profound impact on international trade and capital flows.

The cautious interest rate cut signal released by the Federal Reserve in the minutes of the monetary policy meeting in December 2024 not only reflects its deep insight into the current economic situation, but also indicates a major adjustment of monetary policy in the future. In the face of increased upside risks to inflation and uncertainty about the policies of the new US administration, the Federal Reserve will have to adopt a more prudent and flexible monetary policy to address the challenges ahead. This series of decisions will undoubtedly set off greater waves in the global financial market, testing the wisdom and resilience of governments and financial institutions.