On December 18, local time, the Federal Reserve of the United States made a noteworthy announcement regarding monetary policyIt decided to lower the target range for the federal funds rate by 25 basis points to between 4.25% and 4.50%, a move that aligned with widespread market expectationsFederal Reserve Chairman Jerome Powell held a press conference to discuss this decision, indicating that future considerations for adjusting policy rates would be approached with more caution.

Following the announcement, major technology stocks saw a significant decline, while spot gold fell below the $2,600 per ounce mark for the first time since November 18, 2024. In response to the Fed's decision, gold prices plummeted by $37, reflecting a drop of 1.73% on that day.

The Decision Comes After Three Consecutive Cuts

This marks the third consecutive interest rate cut by the Federal Reserve since September 2024. The Fed mentioned in its statement that the U.S

economy is continuing to expand steadilyBy 2024, the tight labor market conditions have shown some alleviation, with a slight rise in the unemployment rate, yet it remains low overallInflation is progressing towards the long-term target of 2%, although it is still "somewhat high."

Amid intense market scrutiny, Chairman Powell's press conference attracted significant attention, with him conveying a serious demeanor throughout the sessionHe candidly articulated that the decision to lower rates in December was more challenging than in previous instances, filled with numerous uncertainties, but he maintained that it was the "right decision" at the present momentLook ahead to 2025, Powell elaborated that the Fed's rate-cutting decisions would closely depend on actual data rather than arbitrary predictions and modelsHe emphasized that further rate cuts would only be considered cautiously once inflation showed substantial improvements and returned to a reasonable range.

According to Nick Timiraos from the Wall Street Journal, the Fed's policy statement notably included the phrases of "magnitude and timing," suggesting a slowdown in the pace of rate cuts to amend potential adjustments.

In a pivotal moment for global financial markets, the Federal Reserve delivered a fresh set of quarterly economic forecasts that carried significant weight

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A particularly noteworthy adjustment was the upward revision of inflation expectations for the coming yearNotably, looking forward to 2025, the Fed’s favored inflation measure—the Personal Consumption Expenditures Price Index—is now projected to rise by 2.5%, representing a 0.4 percentage point increase from the prediction made in SeptemberThis starkly indicates that the Federal Reserve views future price trends as increasingly grimAdditionally, the core PCE index, which excludes food and energy prices, is also expected to rise to 2.5%, a 0.3 percentage point increase from September’s data, suggesting that inflationary pressures are deeply embedding within the economyAt the same time, the Fed adjusted its growth forecast for the economy in 2025 by raising it by 0.1 percentage points to 2.1%.

The financial markets have sharply focused on the newly published dot plot by the Fed, which serves as a beacon guiding the future direction of monetary policy

The dot plot clearly reveals a shift in sentiment among Fed officials, significantly reducing expectations for rate cuts in 2025. Previously, a cumulative reduction of 100 basis points, equivalent to four rate cuts, was anticipated for 2025, which has now been adjusted down to only 50 basis points, meaning just two cutsThis adjustment sharply contrasts with the optimistic forecasts made in SeptemberFurthermore, the CME Group's FedWatch Tool indicates that market participants have a robust belief that the Federal Reserve is highly likely to maintain the current rate levels in January 2025, with probabilities exceeding 90%.

The U.SStock Market Faces Major Drops

On Wednesday, Eastern Time, the three major U.Sstock indices experienced a dramatic "flash crash" immediately following the interest rate decision, with declines exacerbating during Powell's press conference.

By the end of trading, the Dow Jones Industrial Average fell by over 1,000 points, closing down by 2.58%, marking its 10th consecutive day of declines, the longest losing streak since October 1974. The NASDAQ Composite Index dropped by 716.37 points, or 3.56%, to close at 19,392.69 points, while the S&P 500 declined by 178.45 points, equating to a fall of 2.95%, settling at 5,872.16 points.

Most major tech stocks saw considerable drops as well; Tesla fell by 8.28%, resulting in a one-day market value loss of $131.5 billion (approximately 96.25 billion RMB). Amazon saw a decrease of 4.6%, while Microsoft, Meta, and Alphabet's Google A shares all decreased by over 3%, with Apple down by 2.14% and Nvidia dipping by 1.14%.

According to the U.S