Analysis of Powell's Year-End Press Conference Guidance

At the year-end FOMC press conference, Powell provided a roadmap for 2024 policy: 1) Pause rate hikes but keep the option open; 2) Continue balance sheet reduction until bank reserves drop to 10% of GDP; 3) Rate cuts require seeing inflation "sustained for several months" to meet targets. He acknowledged for the first time the risk of overly tight monetary policy, noting that real interest rates are already above neutral levels. The market interpreted this as a dovish turn, with federal funds futures pricing in three rate cuts totaling 75 basis points in 2024, and Bitcoin responded by breaking through the $40,000 mark.