In a dramatic turn, U.S. stocks and global markets crumbled after the Federal Reserve’s latest dot plot iteration, which only pencilled in two more cuts, down from four for the coming year. This sent shockwaves of a 'hawkish cut' across trading floors worldwide. The aftermath was brutal: 10-year Treasury yields rocketed above 4.50%, the dollar surged, smashing through key resistance levels, and the S&P 500 plummeted nearly 3.0 %, signalling a distressed market.
Since slashing rates by a bold half-point in mid-September—triggered by dipping inflation and fears of a teetering labour market—the Federal Reserve has carved a full percentage point off its benchmark rate. Yet, the economic terrain has shifted dramatically since then. The labour market has shown surprising resilience, consumer spending remains unchecked, and inflation is stubbornly perched above the Fed's target. Now ominously projected to soar to 2.5% by year's end, up from a previously estimated 2.1% in September, these figures paint a picture of an economy heating up faster than anticipated, challenging the Fed's navigational prowess in calming the economic currents.
This harrowing shift in the monetary policy outlook thrusts us into a turbulent new reality. Suppose the U.S. economy shows unexpected strength early in 2025 and confronts burgeoning inflationary pressures from President-elect Trump's audacious economic agenda. In that case, the reality is that financial markets will start to pare back expectations for further rate cuts next year to a no-cut 2025 scenario. President-elect Trump's hawkish stance on trade, immigration, and taxation injects a potent dose of volatility into the inflation narrative. Depending on their final form, these policies could intensify inflationary pressures and tighten the labour market further.
Chairman Powell has acknowledged that the Fed is actively modelling Trump’s economic proposals. Yet, these are not currently factored into the Fed's immediate decision-making due to the uncertainty about their definitive details. The landscape is fraught with hawkish risks, making the market’s outlook increasingly precarious.
Officials have adjusted their median estimate of where the policy rate will settle in the long run, nudging it up to 3% from 2.9%. This adjustment appears generous by many accounts, as their economic projections hint that the neutral rate could be significantly higher. This suggests that officials might achieve a balanced policy with fewer rate cuts than currently anticipated.
That FOMC meeting definitely put a damper on the “wealth effect” for now!
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
Recommended Content
Editors’ Picks

EUR/USD regains traction and bounces off daily lows
After bottoming out near 1.0450, EUR/USD managed to regain some balance and revisit the 1.0470 zone on the back of alternating risk appetite trends in the FX world and amid investors' assessment of the German elections.

GBP/USD hovers around 1.2630 amid a vacillating Dollar
GBP/USD alternates gains with losses in the low-1.2600s in response to the lack of a clear direction in the global markets and a lacklustre price action surrounding the Greenback.

Gold extends consolidative phase near record highs
Prices of Gold glimmered higher on Monday, hitting an all-time high around $2,955 per ounce troy on the back of the US Dollar's inconclusive price action as investors are warming up for a key inflation report due toward the end of the week.

Bitcoin Price Forecast: BTC standoff continues
Bitcoin has been consolidating between $94,000 and $100,000 since early February. Amid this consolidation, investor sentiment remains indecisive, with US spot ETFs recording a $540 million net outflow last week, signaling institutional demand weakness.

Money market outlook 2025: Trends and dynamics in the Eurozone, US, and UK
We delve into the world of money market funds. Distinct dynamics are at play in the US, eurozone, and UK. In the US, repo rates are more attractive, and bills are expected to appreciate. It's also worth noting that the Fed might cut rates more than anticipated, similar to the UK. In the eurozone, unsecured rates remain elevated.

The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.