The arrival of 2025 sees the Federal Reserve welcoming 2 "hawkish" voters, 1 "dovish" voter, and 1 neutral voter. How will they impact the Federal Reserve's monetary policy?

On December 18, 2024, local time, the Federal Reserve announced a 25 basis point reduction in the target range for the federal funds rate to between 4.25% and 4.50%, in line with widespread market expectations. This marks the Federal Reserve's third consecutive rate cut following a 50 basis point cut in September 2024 and a 25 basis point cut in November.

Federal Reserve Chairman Powell held a press conference on the same day regarding the rate cut decision, stating that the Federal Reserve will likely be "more cautious" when considering adjustments to the policy rate in the future. Powell mentioned that the December 2024 rate cut decision was more challenging, yet it was the "right decision." He indicated that whether the Federal Reserve will cut rates in 2025 will be based on future data, rather than current forecasts, and that the Federal Reserve will consider further cuts only after inflation improves.

Previously, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held from November 6 to 7, 2024, on November 26, 2024. The minutes revealed that the Federal Reserve decided to lower the target range for the federal funds rate by 25 basis points during the November 2024 meeting, further adjusting the monetary policy stance to help maintain the strength of the economy and labor market while continuing to drive inflation lower.

Citi's Global Macro Strategy team, led by Dirk Willer and other analysts, analyzed the performance of macro assets during past easing cycles' pause periods and distinguished between pauses and the end of easing cycles in their latest report.

Citi's research found that during the Federal Reserve's pause in rate cuts, U.S. stocks typically perform well, but the sustainability of the rise depends on whether economic weakness leads to a resumption of policy easing; U.S. Treasury yields generally rise when the cycle pauses or ends; for the U.S. dollar, if the rate cut is just a pause, the dollar performs sideways, but if it is the last rate cut, the dollar will rise; after a pause, regardless of whether the easing cycle continues, gold prices typically rise.