The Federal Reserve just announced a 25 basis point rate cut in December, as everyone expected, but this time their rate cut seems quite 'cautious', not so urgent anymore.
First of all, they are still saying that employment and inflation are doing well, and they want to ensure everyone has jobs. However, they have started to consider being 'careful' when adjusting interest rates in the future. This rate cut has some dissent, with some saying it should remain unchanged, indicating that the Federal Reserve is not entirely united on this.
The dot plot that everyone is concerned about shows that the Federal Reserve has raised its expectations for future interest rates. They believe that the rates next year and the year after will be higher than previously predicted, with the rate possibly reaching 3.9% by next year, which is higher than the 3.4% predicted in September. Moreover, they expect to cut rates only twice next year and the year after, each time by 25 basis points, which is much less than they previously indicated.
Regarding the economic situation, the Federal Reserve believes that economic growth in the next two years will be better than previously predicted, and the unemployment rate will also decrease. However, they think inflation might be slightly higher than previously expected.
Powell also mentioned at the press conference that they will be more cautious when adjusting interest rates in the future. If the economy continues to perform well and inflation gradually returns to the 2% target, they will take it slowly; but if the labor market suddenly deteriorates or inflation drops too quickly, they may cut rates more aggressively.
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