The Federal Reserve announced a 25 basis point rate cut, which was in line with expectations, but why did the US stock market plummet?

First, the Federal Reserve's rate cut in December was a pre-established script.

The September FOMC meeting had already outlined this story.

A total rate cut of 100 basis points is expected throughout 2024.

A rate cut of 75 to 100 basis points is anticipated in 2025.

So the remaining task is for the Federal Reserve to use its usual methods,

which involve the dot plot and statements from Federal Reserve officials, to manipulate and toy with market sentiment.

They must not let market sentiment become too pessimistic,

nor can they allow it to become overly optimistic and aggressive.

This balancing act has always been a core competency of Federal Reserve officials.

In simple terms, it's like giving a slap and then offering a sweet date.

When you get too excited, they give you a slap; then once you calm down, they feed you a sweet date.

The goal is to keep market sentiment moderately optimistic,

thereby achieving adjustments to inflation, employment rates, and CPI data.

So, a 25 basis point rate cut is a fact, but it is not the source of influence on US stocks and cryptocurrencies.

What influences US stocks and cryptocurrencies, in fact, is the Federal Reserve's slap.

This means that they use hawkish statements and the dot plot to tell you

that it won't be so smooth to cut rates next year, the magnitude will be reduced, and it might not happen at all.

This slap is quite harsh, and Wall Street fund managers hurriedly adjust their positions.

They rush to leverage.

As a result, all three major indices fell.

However, the Federal Reserve will still step in to soothe the market once they see it scared like a quail.

Therefore, this pullback is likely a short-term reactive adjustment

that is not harmful.

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