Many traders do not understand why the market suddenly collapsed, and here we need to sort out the source of the emotional shift:
On December 19, the Federal Reserve lowered interest rates by 25 basis points, which met the expectations of most people,
However, the good news had already been digested by the market, the key point is the Federal Reserve's hawkish comments.
The Federal Reserve has made a significant hawkish shift in its policy outlook for 2025, with the following three points:
The Federal Reserve has lowered its expectation for rate cuts in 2025 from 3 times to 2 times, totaling 50 basis points.
The core PCE inflation expectation for the end of 2025 has been raised from 2.1% to 2.5%.
The Federal Reserve expects the inflation rate at the end of 2026 to still reach 2.1%, slightly above its target of 2.0%.
Powell once again acknowledged that inflation in the U.S. remains a significant issue, and inflation is rising rapidly:
The annualized core CPI inflation rate over three months has now risen to a concerning 4%.
The trend of core PCE inflation is close to above 3.5%, while PPI inflation is also rising.
Apart from Powell, most Federal Reserve officials believe that there will be fewer than 3 rate cuts in 2025. After the meeting, the dollar index soared to its highest point since November 2022, and market sentiment quickly changed.
As a result, the Dow Jones Index set a record for the first consecutive 10-day decline since 1974, and BTC dropped from 100K to its current 93K. With the Federal Reserve's hawkish shift, 2025 may be the most volatile year in nearly a decade.
The world economy presents different patterns: the U.S. hopes to ease employment pressure through rate cuts, while China hopes to stimulate the economy through rate cuts and tax reductions. The U.S. and Europe face enormous inflationary pressures, but China is facing a serious deflationary dilemma.
The level of chaos in the market in 2025 will far exceed traders' imagination.
There are still 10 pit positions in the village, only for fated people!