Source: Wind

On December 18, local time, the Federal Reserve announced its interest rate decision, followed by a press conference held by Chairman Jerome Powell. Here are the key points:

FOMC Statement:

1. The Federal Reserve lowered the target range for the federal funds rate by 25 basis points to between 4.25% and 4.50%. The statement's wording remained largely unchanged, and the decision to cut rates by 25 basis points was passed with a vote of 11-1, with Harker supporting a pause in rate cuts.
2. Regarding the rate outlook, the Fed will consider the "magnitude and timing" of further rate cuts. The median dot plot was adjusted upward, indicating that there will be two rate cuts in both 2025 and 2026, although there are significant divisions among officials. The median forecast shows a 50 basis point cut to 3.9% in 2025 and another 50 basis point cut to 3.4% in 2026.
3. The FOMC raised its median forecast for PCE inflation in 2025 to 2.5%, up from the previous expectation of 2.1% in September. Officials now expect inflation to reach 2% by 2027, pushed back from the earlier estimate of 2026. Overall, the forecasts for 2024-2026 have been raised, with most officials expecting an upward risk bias.
4. The statement's wording regarding steady economic growth remained unchanged, with upward revisions to the real GDP growth forecasts for this year and next year, increasing this year's expectation from 2% to 2.5%.

Powell Press Conference:

1. On the economic outlook, Powell stated that the overall economic performance is strong, with growth in the second half of the year exceeding expectations. He noted that there is no reason to believe that the likelihood of an economic downturn is higher than usual. It is clear that the U.S. has avoided a recession, and he remains very optimistic about the economy. However, there is considerable uncertainty in the forecasts for the next three years.
2. Regarding interest rate policy, Powell indicated that adjustments to rates could be made more cautiously. The change in the statement's wording suggests that the Fed is either at or nearing a stage of slowing rate cuts, and an interest rate hike seems unlikely next year. If inflation does not consistently move toward 2%, rate cuts may proceed more slowly. He warned that slow rate cuts could negatively impact the economy and employment. Decisions on rate cuts next year will be data-dependent, and the Fed is entering a new phase of interest rate adjustments, with clear easing of the policy stance.
3. On inflation, Powell mentioned that it may take one to two more years to reach the target, with significant risks and uncertainties involved. After rising, inflation returned to the right track in November. He expressed confidence that "inflation is on track to return to the 2% target" and noted discussions on how tariffs may impact inflation.
4. On the job market, Powell indicated that the labor market remains robust and is not a significant source of inflationary pressure, not cooling to a concerning degree. The Fed will continue to monitor this situation.
5. In other remarks, Powell stated that the Fed does not allow or intend to hold Bitcoin and is not seeking to change laws to control it. The rate decision today was a difficult choice. Technical adjustments to the overnight reverse repo will not affect the policy stance, and geopolitical turmoil remains a risk.
6. Traders have reduced their pricing for potential Fed rate cuts, now expecting only a 37 basis point cut in 2025, significantly lower than the pre-meeting expectation of 75 basis points.
7. Market Reaction: From the announcement of the statement to Powell's remarks, spot gold dropped sharply by $56; the dollar index rose by 110 points since the decision was announced, reaching a two-year high; U.S. stocks saw an expanded decline, with the Nasdaq down over 3%, the S&P 500 down 2.28%, and the Dow Jones down 1.79%. The yield on the U.S. 10-year Treasury reached its highest level since late May, rising 11.3 basis points to 4.5%.