FedBeigeBook

On December 18, 2024, the Federal Reserve announced a 0.25 percentage point cut to the federal funds rate, bringing it to a target range of 4.25% to 4.5%. While this marks the third consecutive rate reduction this year, the Fed took a cautious stance by signaling a slower pace of cuts in 2025, with only two anticipated reductions instead of the previously forecasted four. This conservative outlook reflects the Fed's ongoing battle to bring inflation closer to its 2% target.
Market Reactions
The Fed's policy announcement triggered widespread declines across financial markets as investors digested the implications of slower monetary easing:
Stock Markets: Major indices saw steep losses. The S&P 500 dropped nearly 3%, the Dow Jones Industrial Average fell over 1,100 points, and the Nasdaq Composite sank by 3.6%. The restrained pace of future rate cuts raised concerns about the Fed’s ability to balance inflation control with economic growth, spooking equity investors.Cryptocurrency Markets: Digital assets mirrored the stock market downturn, with leading tokens such as Bitcoin ($BTC) and Ethereum ($ETH) experiencing sharp declines. The crypto market’s increasing correlation with traditional markets underscores how broader economic concerns now influence the volatile digital asset space.
Key Takeaways
Investors Wary of Slower Easing: The Fed’s decision to temper its pace of rate reductions signals a focus on combating inflation, even at the risk of dampening economic growth.Liquidity Concerns: The slower trajectory for monetary easing has sparked fears of reduced liquidity, adding pressure to risk-on assets like stocks and cryptocurrencies.Uncertain Growth Outlook: While the rate cut offers some relief, the cautious guidance raises questions about the economy's resilience in 2025.
Conclusion
The Fed’s latest move has introduced renewed caution into financial markets. While the central bank remains focused on inflation control, the slower pace of rate cuts has amplified concerns about economic growth and market liquidity. As a result, stocks and cryptocurrencies face headwinds, with investors bracing for potential volatility in the months ahead.
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Rate cut expectations are DROPPING again:

Heading into this week, prediction markets saw a base case of 3 interest rate cuts in 2025.

Now, the base case is falling sharply with a median forecast of just 2.6 cuts, per @Kalshi.

Odds of a rate cut before June 2025 are now back below 20%.

All eyes are on the Fed today.
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Bitcoin initially fell on hawkish language in the Fed's policy statement, but later recovered.
As expected, the U.S. Federal Reserve has kept its benchmark fed funds range rate steady at 4.25%-4.50%, the first pause since the central bank began easing policy last September.

The accompanying policy statement noted that the unemployment rate had stabilized at a "low level" and inflation remained "somewhat elevated." The wording was hawkish as it removed last month's reference to "progress" on inflation moving to its 2% target.
Under pressure for most of this week, the price of bitcoin (BTC) dipped to $101,800 shortly following the news. U.S. stocks added to the day's losses, with the Nasdaq down 1.1% and the S&P 500 lower by 0.9%. The dollar and gold were little-changed and the 10-year Treasury yield rose 5 basis points to 4.59%.

Since the Fed's first September rate cut, the fed funds rate has been slashed by 100 basis points. The U.S. 10-year Treasury yield, however, has gone in the opposite direction, rising to 4.6% fro 3.6% — a divergence between short-term and long-term rates that rarely has been seen.

That divergence as well as a series of stronger than expected reports on the economy and inflation has not been lost on the Fed. Following the bank's December meeting, Chair Jerome Powell made clear that any further rate cuts — at least for the moment — were on hold.
At his post-meeting press conference, Powell said the change in the policy statement language with respect to inflation was not done to send any sort of message. Both bitcoin and stocks moved off earlier lows following his remarks, with bitcoin rising above $103,000 at the time of the press conference's end.
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