On December 19, news reported that the Federal Reserve announced a 25 basis point rate cut as expected on Wednesday, but significantly raised future policy rate and inflation expectations, forecasting only two rate cuts of a total of 50 basis points next year, halving previous expectations.
According to 4E monitoring, after the Federal Reserve's dot plot and economic outlook were released, risk aversion surged, causing all three major U.S. stock indexes to decline. The S&P 500 index fell by 2.95%, the Dow Jones dropped by 2.58%, marking a ten-day losing streak, the longest since 1974. The Nasdaq fell by 3.56%. Tesla's stock plummeted over 8%, leading the decline among tech giants. Cryptocurrency stocks generally fell, with MSTR down 9.52% and Coinbase down 10.2%.
The Federal Reserve has caused a crash in the U.S. stock market, leading to a significant correction in the crypto market. BTC fell below $100,000, and Powell's statement that 'the Federal Reserve does not allow and has no intention of holding Bitcoin' intensified selling pressure, with Bitcoin dropping by as much as 6.2%, currently reported at $99,235 before the deadline. Ethereum briefly dipped to $3,542, down 7.27%, while altcoins generally experienced double-digit declines. In the past 24 hours, the liquidation amount across the crypto market reached $842 million, deepening market panic.
In the forex commodities sector, the Federal Reserve's drastic cut in rate cut expectations led to the dollar index rising over 1% to a two-year high; gold prices fell over 1% to a one-month low; a decline in U.S. crude oil inventories boosted crude prices, but the slowing pace of rate cuts suppressed the demand outlook for oil, leading to a rise and subsequent fall in oil prices gradually erasing gains.
The interest rate 'dot plot' released by the Federal Reserve shows that only two more rate cuts are expected by 2025, which is more hawkish than the September dot plot predictions, leading to extreme market fear. Federal Reserve officials also expect two more rate cuts in 2026 and one more in 2027.
According to IG market strategist Yeap Jun Rong in a report, the trajectory of the Federal Reserve's future rate cuts may depend on the policies of President-elect Trump, which remain unclear at this stage. He stated that Trump's initial remarks on tariffs indeed sounded very aggressive. However, he added that the extent of implementation of these measures is uncertain. Yeap noted that as policies become clearer, the Federal Reserve might initially lean towards a shallower rate cut cycle. He also mentioned that unless the Bank of Japan makes an unexpected decision, the U.S. stock market might gradually rise in the last few weeks of 2024 after the conclusion of the Federal Reserve's meeting. However, reaching new record highs by the end of the year could be challenging due to a lack of further catalysts.
