5 Key Takeaways from the Federal Reserve's December Meeting
*Hawkish Policy Shift:*
- The Federal Reserve cut its benchmark rate by *25 basis points to 4.25%–4.5%* but signaled no further cuts in January, surprising markets with a more hawkish outlook.
*Revised Rate Cut Projections for 2025:*
- The Fed now anticipates two rate cuts in 2025, compared to four projected earlier, with the benchmark rate expected to drop to 3.9%.
- Analysts at Morgan Stanley predict these cuts will occur in March and June.
*Inflation Outlook Adjustments:*
- Core PCE inflation is now forecasted to reach 2.5% in 2025, up from the previous estimate of 2.2%, reflecting reduced confidence in disinflation.
*Market Reaction:*
- The hawkish stance rattled financial markets, causing equities to slump and Treasury yields to rise.
- ING noted this reflects diminished confidence in the Fed's ability to manage inflation effectively.
*January Policy Pause Likely:*
- ING and Wells Fargo expect the Fed to hold rates steady at the January 29 meeting, citing uncertainties around fiscal policy under the new administration and the cooling jobs market's impact on inflation.
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