The Federal Reserve (Fed) will announce its latest interest rate decision in the early morning of December 19. The market generally expects a further 0.25 percentage point rate cut this time, lowering the effective rate from 4.7% to 4.4%. However, the real focus is not the magnitude of this rate cut, but the Fed's forward-looking stance on the interest rate path in 2025. Although the legislature had vaguely promised a 100-basis-point rate cut next year in September, Wall Street's expectations have become more conservative, with some traders even only forecasting a 50-basis-point cut next year.
VX: TTZS6308
However, some economists hold a relatively optimistic or middle-of-the-road view. Recent U.S. economic data has been strong, with Q3 and Q4 GDP revised up to 2.8% and 3.3% respectively, far exceeding the CBO's previous estimate of a 2% "sustainable growth" level. At the same time, although inflation is declining, it remains stubbornly persistent, with CPI still fluctuating between 3% and 4%, higher than the official 2% target. This "strong economy, slower-than-expected disinflation" situation leads some to believe that the Fed may also be reluctant to loosen its grip too quickly next year.
Tight Pace of Rate Cuts, Increased Volatility Feared
From a market perspective, Wall Street's conservative adjustments and the Fed's increased decision-making difficulty coexist. With interest rates still high and inflation not mild enough, it means that if the Fed were to cut rates sharply next year, it could risk fueling excessive monetary easing and re-elevating inflationary pressures. The Fed may slightly upwardly revise its 2025 interest rate path target (e.g., from the previous 3.4% to 3.7%), between Wall Street's current expectation of 3.9% and the Fed's previous commitment.
What does this mean for the market? If interest rates are higher than expected but still set to gradually decline, the overall cost of capital will still tend to decrease, benefiting borrowing and leveraged operations, and allowing more capital to flow into risky assets (including stocks and cryptocurrencies), pushing up their prices.
However, as the rate cut may not be as aggressive as optimists had hoped, it could also trigger a short-term market adjustment or volatility. The market still needs to assess: if the Fed's more cautious rate cut expectations are not strong enough to boost risk appetite, will investors reconsider their asset allocation strategies?
New Regulatory Environment and Policy Shifts to Dominate Future Trends
Another key factor influencing the 2025 rate cut path is the U.S. policy environment. If Trump leans towards loose financial regulation and encourages capital investment, the cryptocurrency market may welcome a more favorable regulatory environment. New policies such as tax cuts, tariffs, and immigration controls could also push up inflation, making the Fed's expected rate cut pace too cautious. However, if policies maintain a healthy economy rather than "emergency rate cuts", this would be a healthy sign for long-term investors: it shows economic resilience and more stable financial markets.
On the other hand, Bitcoin has recently hit a new high of $108,367, and the market expects a loose monetary environment to continue driving the strength of risky assets. Investors who expect a sharp rate cut to boost sentiment may need to rationally evaluate: the Fed may only give a slightly less dovish signal than expected, and if trading psychology falls short, prices may experience a temporary pullback.
Steady Moderation Replaces Aggressive Rate Cuts
In summary, after the Fed's December interest rate decision, the outside world's view on the 2025 rate cut magnitude is likely to be more "neutral": not no cuts, but gradual cuts. Although inflation is heading towards the target, it remains "stubborn"; and although the economy remains strong, the Fed is unwilling to risk over-stimulation. The Fed will adjust its pace based on actual data and policy variables, rather than seeking short-term gratification through a "one-time large cut".
For the market, this is a signal of composure and pragmatism. Overly optimistic rate cut expectations need to be corrected, but at least a moderate monetary environment can still be expected, providing long-term mild support for the stock, bond, and even cryptocurrency markets.
Amid the multiple factors of economic performance exceeding expectations, inflation declining but not enough, and the regulatory environment awaiting clarification, the pace and magnitude of 2025 rate cuts will still be a key factor influencing market trends. Risk management should be in place, and investment strategies should be adjusted in a timely manner to cope with the subtle changes that the Fed's "flexible rate cuts" may bring.