As 2025 approaches, global financial markets are once again focusing on the Federal Reserve, the heart of the global economy. Every move the Fed makes, especially adjustments to its monetary policy, not only affects the pulse of the U.S. economy but also shakes the nerves of global markets. This year, the Fed's policy adjustments signal significant changes, with new members joining, external criticism being voiced, and uncertainties surrounding interest rate cuts, all contributing to a complex economic environment.

01 Power Shifts at the Federal Reserve: New Members, New Styles

The rotation of FOMC members at the Federal Reserve indicates that the policy stance in 2025 will be more diversified. The addition of new members, particularly Susan Collins, Alberto Musalem, Jeff Schmid, and Austan Goolsbee, will make the divide between hawks and doves more pronounced, potentially increasing policy uncertainty.

02 Musk Criticizes the Federal Reserve: Implications of Layoffs and Reforms?

In addition to the changes in FOMC members, Musk's public remarks have also added more variables to the future of the Federal Reserve. Recently, Musk criticized the Fed on social media, claiming that the Fed has an 'overstaffing' issue. This statement has attracted significant market attention, with investors beginning to speculate whether Musk's 'Government Efficiency Department' will implement 'restructuring' or reforms at the Fed.

The 'Government Efficiency Department' led by Musk is an informal advisory body aimed at reducing administrative costs through layoffs and streamlining federal government agencies. Musk has publicly stated his desire to reduce the number of federal agencies in the U.S. from over 400 to 99, cutting the federal budget by $2 trillion. This statement has sparked widespread controversy, as it directly touches upon the independence and operational efficiency of the Federal Reserve.

While the importance of the Fed's independence is widely recognized, Musk and other supporters argue that the Fed's operations are too large and inefficient and should be reformed. If the 'Government Efficiency Department' indeed takes measures against the Fed, it would have a significant impact on U.S. monetary policy and might even change the very foundation of the Fed's independence.

03 The Prospect of Interest Rate Cuts by the Federal Reserve: Increasing Uncertainty

In addition to internal personnel changes and external criticisms, the prospect of interest rate cuts by the Federal Reserve has also become a focal point for the market. At the Federal Reserve meeting in December 2024, up to 15 officials believed that inflation faced upward risks, complicating market expectations for rate cuts. Although the Fed has begun to cut rates, the future of this cycle remains fraught with uncertainty.

According to CME's 'Fed Watch' data, the market expects a 91.4% probability that the Federal Reserve will pause interest rate cuts in January 2025, while the probability of a 25 basis point cut is 8.6%. However, investors still face turmoil potentially brought about by the Trump administration, making the Fed's policy direction even harder to predict.

Wall Street analysts indicate that the Federal Reserve has entered a new phase of monetary policy — the pause phase, during which the market will have to cope with the volatility brought about by policy uncertainty. In the pause phase, the Fed's decisions may be more cautious, and the volatility in financial markets may increase accordingly.

04 The 'Most Painful' Interest Rate Cut Cycle: Dual Challenges for the Economy and Financial Markets

The interest rate cut cycle by the Federal Reserve has already begun to impact the economy and financial markets. The rise in the 30-year mortgage rates and U.S. Treasury yields indicates that the market's response to rate cuts is not as expected, and could instead lead to significant losses in the bond market.

05 Conclusion: Heightened Market Sensitivity and Future Uncertainty

The series of changes that the Federal Reserve is about to undergo undoubtedly brings unprecedented uncertainty to the market. From the replacement of FOMC members to external criticism from figures like Musk, and the complex changes surrounding interest rate cuts, all these factors are continuously driving market fluctuations.

For investors, the direction of monetary policy in 2025 will become one of the primary focal points. Whether the Fed can maintain its independence under internal and external pressures, and whether it can find a balance between economic slowdown and inflationary pressures, will have profound effects on global financial markets.

Whether it's the changes in the Fed's membership or the remarks from Trump and Musk, 2025 has become a year full of variables. Investors need to be more cautious during this period, paying attention to policy and market dynamics, while maintaining the ability to respond flexibly.