The Federal Reserve's expectation for four rate cuts next year has been downgraded to two, with a total annual rate cut of 0.5%, or 50 basis points, which is significantly lower than expected, resulting in a sharp decline in US stocks.

The Federal Reserve is expected to lower borrowing costs on Thursday, with some observers calling it a 'hawkish rate cut.' This rate cut will be announced alongside updated interest rate outlooks and economic forecasts from policymakers, covering the initial months after the Trump administration took office.

The anticipated 25 basis point rate cut would lower the Fed's benchmark rate to a range of 4.25%-4.50%, one percentage point lower than the level when it began easing monetary policy in September to address the inflation surge that started in 2021.

How much rates will decline next year and how quickly remains increasingly uncertain. Inflation is still above the Fed's 2% target, economic growth is faster than expected, and the tariffs, taxes, and immigration policies of President-elect Trump may unpredictably alter the economic landscape after he takes office in January.