Institutional Interpretation | Driving in Fog: The Federal Reserve Will Slow Down Rate Cuts

The Federal Reserve lowered interest rates by 25 basis points as scheduled in the December meeting, with policymakers' forecasts for the future economy and interest rates leaning hawkish. We believe the hawkish guidance is precautionary, as the Federal Reserve does not want to make another mistake regarding inflation. However, officials have not completely abandoned the idea of further rate cuts; today’s hawkish stance is to avoid being hawkish tomorrow. The Federal Reserve's guidance is consistent with our predictions in the annual report (please refer to "Overseas Macro 2025 Outlook: From Soft Landing to New Equilibrium"), thus we maintain our judgment that the policy rate will be lowered to a neutral level of 3.75%-4.0% in 2025. In terms of the pace of rate cuts, we predict that the Federal Reserve will "skip" the January meeting next year, followed by rate cuts of 25 basis points in the March and June meetings, and then halt further cuts, entering a wait-and-see mode in the second half of the year, with monetary policy decisions based on the effects of Trump's administration. We do not believe that the interest rate guidance provided by the Federal Reserve is overly tight, nor do we see signs that monetary policy is about to undermine the "soft landing" outlook. More uncertainty comes from Trump's policies, but that will only become clear after Trump takes office on January 20