The US Federal Reserve announced an interest rate cut of 25 basis points on Wednesday (December 18), reducing its target range to 4.25 to 4.5 percent in its third reduction of the year.
Policymakers also signaled that only two rate cuts are expected in 2025 versus the four originally forecast.
“I think the actual cuts that we make next year will not be because of anything we wrote down today. We’re going to react to data; that’s just the general sense of what the committee thinks is likely to be appropriate,” he said.
Financial markets experienced significant volatility following the Fed’s announcement.
The selloff was triggered by the Fed’s cautious tone and change in its 2025 rate cut projections. Many market participants had anticipated a more aggressive series of reductions, and took the time to reassess their strategies.
Bond yields also rose sharply as investors now expect tighter financial conditions for an extended period.
The gold price experienced volatility, shedding 2 percent following the rate cut, slipping to US$2,585 per ounce. The decline marked the first time the yellow metal has fallen below US$2,600 since mid-November.
While gold rebounded in after-hours trading, sister metal silver fell 3 percent after the rate cut and is holding in the US$29.20 per ounce range.
While emphasizing the Fed’s independence, Powell also acknowledged the uncertainty currently surrounding Trump’s proposed tax cuts, tariff increases and immigration measures.
“It’s very premature to make any kind of conclusions. We don’t know what will be tariffed, from what countries, for how long, in what size,” Powell explained to reporters on Wednesday.
That said, he noted that Fed officials have started assessing potential scenarios. Powell also said Trump’s policies could have inflationary effects, particularly through increased tariffs and fiscal stimulus measures.
For instance, the Fed’s projections show economic growth remaining slightly above trend in 2025, with inflation staying above target for at least two more years. The jobless rate is expected to remain low, hovering around 4.3 percent.
These conditions, Powell said, will guide future monetary policy decisions, irrespective of changes in fiscal policy.
He also clarified the central bank’s stance on digital assets, responding to Trump’s campaign discussions on creating a strategic reserve for popular cryptocurrency Bitcoin.
Powell was clear that the Fed is not authorized to own Bitcoin under existing laws, and has no plans to advocate for legislative changes to enable such holdings.
“That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed,” he said.
Moving forward, the Fed reiterated its goal to bring inflation back to its benchmark 2 percent target.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
Leave a Reply