Suspense of Federal Reserve's December interest rate cut and policy outlook for 2025

As 2024 draws to a close, global financial markets are once again focused on the Federal Reserve's upcoming FOMC meeting on Wednesday, December 18th. As the highlight of this year's last 'central bank super week', the Federal Reserve's interest rate decisions and quarterly economic forecasts will not only directly affect the US domestic economy, but also have an impact on the global market. The market generally expects the Federal Reserve to cut interest rates by 25 basis points in December, but the recent strengthening of data, especially the performance of inflation and the job market, has added uncertainty to the Fed's policy path in early 2025.

Since September this year, the Federal Reserve has cut interest rates twice in a row, with a cumulative rate cut of 75 basis points. This series of interest rate cuts is aimed at addressing the slowdown in US economic growth and easing inflationary pressures. However, with the release of November data, the market found that some key indicators of the US economy were not as weak as expected, but rather showed some resilience.

Especially in terms of inflation data, although the overall inflation rate has fallen for several consecutive months, the core inflation rate still remains at a relatively high level. In addition, the job market has also shown a certain degree of stability, although the number of new jobs added is lower than expected, the unemployment rate remains low, and the labor market supply and demand are roughly balanced. The strengthening of these data has raised new expectations in the market for the policy path of the Federal Reserve after the December interest rate cut.

At the upcoming FOMC meeting, the Federal Reserve will release its latest interest rate decisions and quarterly economic forecasts. The market generally expects the Federal Reserve to cut interest rates by 25 basis points, keeping the target range for the federal funds rate between 4.5% and 4.75%. However, what is even more crucial is the Federal Reserve's policy statement and subsequent press conference, which will provide the market with more clues about the future policy path.

The Federal Reserve's policy statements typically include an assessment of the current economic situation, predictions for future economic prospects, and a outlook for monetary policy. At this meeting, the market will closely monitor the Federal Reserve's views on economic growth, inflation, and the job market, as well as how these views will affect its future policy decisions.

It is particularly noteworthy that the Federal Reserve has removed the statement about "gaining confidence in anti inflation issues" in previous policy statements, reflecting policymakers' cautious attitude towards the inflation situation. Therefore, at this meeting, whether the Federal Reserve will make a new assessment of the inflation outlook and how this assessment will affect its policy path will be the focus of market attention.

Although the market generally expects the Federal Reserve to cut interest rates by 25 basis points in December, the strengthening of November data increases the risk of the Fed suspending interest rate cuts in early 2025. On the one hand, if economic data continues to show resilience, especially with stable inflation and job markets, the Federal Reserve may consider current interest rate levels sufficient to support economic growth without the need for further rate cuts.

On the other hand, if there are signs of weak economic data, especially if inflationary pressures further ease and economic growth slows down significantly, the Federal Reserve may continue to cut interest rates to stimulate the economy. However, this pace of interest rate reduction may be more cautious to avoid excessive easing of monetary policy leading to economic overheating or asset foam.

In addition, the policy decisions of the Federal Reserve will also be influenced by other factors, such as the global economic situation, geopolitical risks, and domestic policy changes. These factors may all have a significant impact on the policy path of the Federal Reserve.

Under the expectation of interest rate cuts, stock and bond markets usually experience an upward trend, as interest rate cuts help reduce corporate financing costs, improve profitability, and drive up investors' risk appetite. However, in the presence of uncertainty in the path of interest rate cuts, the market may experience volatility.

Looking ahead, as the global economic situation becomes more complex and volatile, and geopolitical risks intensify, the Federal Reserve's policy decisions will face more challenges and uncertainties. However, as one of the important engines of the global economy, the policy direction of the Federal Reserve will still have a significant impact on the global financial markets. For investors, it is important to closely monitor the Federal Reserve's policy statements and press conferences, as well as subsequent economic data performance. When formulating investment strategies, diversified asset allocation, regular evaluation, and adjustment of asset allocation ratios can be considered to reduce risks and obtain returns.