A clearly hawkish rate cut, but not overly pessimistic. The recently announced December Fed rate decision cut rates by 25 basis points as expected, but showed a clear attitude of slowing down:

1. The statement from this meeting continues to reiterate that the risks to employment and inflation are generally balanced, firmly committed to supporting full employment, the balance sheet reduction plan remains unchanged, and new considerations regarding the "magnitude and timing" of future rate adjustments have been added, which implies a slower pace of future rate cuts. This rate cut of 25 basis points had one unexpected dissenting vote; the President of the Cleveland Fed wished to keep rates unchanged, indicating a fracture in the Fed's internal unity.

2. The dot plot, which has garnered the most attention, shows that compared to the last forecast in September, Fed officials have raised their rate expectations for all time periods after this year. The median rate expectation for next year has risen to 3.9% (from 3.4% in September), and the median expectation for 2026 has increased to 3.4%, both up by 50 basis points, while the median for 2027 has been raised by 20 basis points to 3.1%. Fed officials currently expect two rate cuts of 25 basis points next year, and the same rate cuts the following year, far lower than the September forecast of four cuts over 25 years.

Regarding economic expectations, Fed officials have raised their GDP growth forecasts for this year and next, lowered unemployment rate expectations for this year and next, and raised PCE inflation expectations and core PCE inflation expectations for the next three years.

3. During Powell's press conference, he clearly stated that he would be more cautious when considering further adjustments to the policy rate. If the economy remains strong and inflation does not continue to approach the 2% target, the Fed may slow its policy adjustments. If the labor market unexpectedly weakens or inflation declines faster than expected, the Fed could also loosen policy more quickly. The Fed is prepared to address the risks and uncertainties encountered in achieving its dual mandate.