Analyst Katarina Sarayeva pointed out that the Federal Reserve System’s (Fed) projections for next year turned out to be more aggressive than anticipated. On December 18, the Fed lowered the federal funds rate for the third time this year by 25 basis points to 4.25-4.5% annually, aligning with most experts’ expectations.
The Fed’s actions in 2025 will be more aggressive than expected. Currently, the average Fed officials’ forecast is just two rate cuts next year.
The personal consumption expenditures (PCE) index and core PCE inflation are also expected to rise compared to the initial forecast.
Therefore, the three major U.S. stock indexes are declining in the short term. Dow Jones dropped by 0.38%, S&P 500 by 0.56%, Nasdaq by 0.64%.
BTC, altcoins, and gold also fell along with stocks. The total market capitalization of cryptocurrencies dropped over the day to $3.48 trillion (-4.62%).
According to Financial Times, the key reason for this approach is the Fed’s heightened focus on inflation risks and the stability of the U.S. economy. Analysts noted that this course indicates the Fed’s intention to conduct slower and less significant rate cuts compared to previous cycles.
As highlighted by Reuters, current forecasts may affect investors’ sentiments as even a moderate rate cut combined with tough rhetoric could cause market instability.
The Fed’s strict policy could create additional pressure on cryptocurrencies. According to BloomingBit, investors should prepare for increased volatility and a prolonged period of uncertainty, as Fed policy remains a key market factor.