Fed Meeting Causes Market Plunge: Hawkish Tone Surprises Expectations

The Federal Reserve's latest meeting has resulted in a sharp decline in both the stock and Treasury markets, while the dollar has surged to its highest level since 2022. Although the market had anticipated this meeting, the hawkish tone exceeded expectations, underscored by four key points:

1、Significant Reduction in Rate Cut Projections

2、Notable Increase in 2024 PCE Inflation Forecasts

3、Clear Indication of Upside Risks to Inflation

4、Opposition from Several Committee Members

As widely expected, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 25 basis points to 4.25%–4.5%. However, as Chairman Jerome Powell noted during the press conference, monetary policy has now entered a "new phase," during which the committee will adopt a more cautious approach.

Powell highlighted four reasons for this hawkish shift: a reduction in concerns regarding labor market weakness, inflation running above expectations with an elevated risk outlook, current rates being closer to the neutral level—approximately 100 basis points higher than at the beginning of the rate-cutting cycle—and increased uncertainty prompting the Fed to slow its return to a neutral stance. Powell remarked that when the path is uncertain, it is common sense to proceed with caution.

JPMorgan analysts noted that increased uncertainty is prompting the Federal Reserve to slow its return to a neutral stance. We continue to expect that the Fed will remain on hold at its January meeting, with the next rate cut likely not occurring until March. Currently, U.S. interest rate futures are pricing in over a 90% probability that the Fed will maintain rates in January, up from 81% prior to the Fed's recent rate decision.

While the effects of Trump's policies on the economy remain uncertain and will require a cautious, step-by-step approach, the market will persist in seeking investment opportunities that offer the most predictable returns.