* Is Fed Powell becoming the Grinch that stole Christmas, similar to what he did back in 2018?
* Market tanked across all asset classes after he signaled just 2 rate cuts next year with expected inflation to move higher
* AUD tanked -1.7% to 62.26c , DXY hit 108
* The Fed's action has tilted towards a stronger dollar ahead, which portends problems for JPY and emerging economies
* Dow fell sharply by -1123pts or -2.58%, S&P500 below 6k at 5868 -3%, Nasdaq -3.65%, Small caps bashed IWM -4.42%
* Gold fell below $2600, -1.97%, Gold stocks did worse than Gold and stock indices, GDX -4.61%, GDXJ -4.77%
* Silver which barely did much the past week, still hit down -3.54% to $29.45, SIL -5.37%,SILJ -5.47%
* BTC returns closer to 100k at $101k down -5.24%
* Banks not spared, XLF -2.99%, JPM -3.37%, Morgan Stanley -5.25%, Goldman -4.25%
* Oil stocks which didn't do well fell more, XLE -2.96%, Chevron -2.72%, Occidental -1.16% (-22% the past year)
* Lithium stocks smashed - poor performer hit even harder- LIT -3.41%, ALB -7.26%, SQM -1.59%, LAC -6.39%, PLL -7.01%
* Copper stocks - BHP -3.14%, Rio -3.45%, Freeport -4.7%, First Quantum -6.16%, COPX -3.9%, Teck -4.68%
* Uranium URA -3.17%, Coal stocks BTU -0.51%, AMR 1-.62%, ARCH -1.62%, CEIX -1.84%
* As I warned over the past week, underperformed stocks tend to be hit harder in times of adversity. Poor risk: reward to stick with hopium.
* What did AUD Gold do? $4159 down just -0.34% Fed cuts rates, signals two reductions in 2025 Howard Schneider and Ann Saphir
Dec 19, 2024 – 6.04am
Washington | The US Federal Reserve cut interest rates on Wednesday (Thursday AEDT) and signalled it will slow the pace at which borrowing costs fall further given a relatively stable unemployment rate and little recent improvement in inflation.
“Economic activity has continued to expand at a solid pace” with an unemployment rate that “remains low” and inflation that “remains somewhat elevated”, the central bank’s rate-setting Federal Open Market Committee said in its latest policy statement.
“In considering the extent and timing of additional adjustments to the target range … the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said in new language that sets up a likely pause to rate cuts beginning at the January 28 to 29 meeting.
US central bankers now project they will make just two reductions of a quarter of one percentage point each by the end of 2025.
That is half of one percentage point less in policy easing next year than officials anticipated as of September, with Fed projections of inflation for the first year of the new Trump administration jumping from 2.1 per cent in their prior projections to 2.5 per cent in the current ones – well above the central bank’s 2 per cent target.
Slower progress on inflation, which is not seen returning to the 2 per cent target until 2027, translates into a slower pace of rate cuts and a slightly higher ending point of 3.1 per cent, also hit in 2027, versus the prior “terminal” rate of 2.9 per cent seen as of September.
Fed officials also boosted their estimate of the long-run neutral rate of interest to 3 per cent.
The reduction in the benchmark policy rate to the 4.25 to 4.50 per cent range was opposed by Cleveland Fed president Beth Hammack, who preferred to leave it unchanged.
The new policy rate is now a percentage point lower than the peak reached in September when officials concluded inflation was dependably on the way back to the 2 per cent target and that there were risks to the job market of keeping monetary policy too tight for too long.
Key measures of inflation since then, however, have largely moved sideways, while continued low unemployment and stronger-than-expected economic growth have sparked debate among policymakers about whether monetary policy is as tight as thought – a discussion reflected in the steady increase in the long-run estimate of the neutral rate over the past year from 2.5 per cent to 3.0 per cent.
The latest quarterly projections are the first since President-elect Donald Trump’s victory in the November 5 election, which introduced a new level of uncertainty into the economic outlook given his campaign promises for tax cuts, tariff hikes, and a crackdown on unauthorised immigration – which some analysts see as inflationary.
Trump doesn’t take office until January 20, and Fed officials have said they cannot base monetary policy on campaign proposals that may or may not be enacted.
Still, Fed staff have likely been gaming out different scenarios, and policymakers’ projections show growth remaining above potential at 2.1 per cent next year, inflation remaining above target for two more years, and the jobless rate never rising above 4.3 per cent
Hawkish Fed Cut Rates As Expected; Signals Dramatically Less Aggressive Rate-Cut Cycle
by Zero Hedge
Thursday, Dec 19, 2024 - 06:05 AM
Tl;dr: The Fed has clearly decided that Trump's policies will be inflationary - ignoring for a moment the forced-hand of a rate-cut today, they hiked their inflation and interest rate forecasts dramatically, with the latter catching up to the hawkish market's perception.
But despite the hawkish shift, they see the unemployment rate basically unchanged from where it is now...
We'll see which of those is wrong soon...
Just a reminder - The Fed slashed rates by a dramatic 50bps (crisis-like move) less than 3 months ago!! And now - post-election - things are completely different.
* * *
Since the last FOMC meeting - on November 7th - the dollar and stocks have rallied while gold and oil have lagged as the dollar flatlined (amid significant volatility on the way from various macro data surprises)... Source: Bloomberg
Most notable is the fact that inflation data has dramatically surprised to the upside and 'hard' data (excluding sentiment/surveys) has also soared since The Fed started its rate-cutting cycle... Source: Bloomberg
Bear in mind that financial conditions are at around the same 'looseness' or 'easiness' as they were before the Fed started the rate-hiking cycle... Source: Bloomberg The market is fully priced for a cut today but as the chart below shows, expectations for 2025 cuts have collapsed... Source: Bloomberg
...prompting many to expect a so-called 'hawkish cut' today.
Fed members will also release a new Dot Plot today - we assume they will, as always, adjust towards the market which is currently dramatically more hawkish than the dots... Source: Bloomberg So what did The Fed do?
As expected and fully priced in, The Fed cut its benchmark rate by 25bps to 4.25%-4.50% target range.
The Fed also cut its overnight reverse repo facility rate from 4.55% to 4.25%.
Key highlights suggest The Fed is anything but on an automatic easing path...
*FED TO ASSESS DATA REGARDING EXTENT, TIMING OF FUTURE MOVES
*FED SAYS CLEVELAND'S HAMMACK DISSENTED IN FAVOR OF NO RATE CUT
The Fed's dots spiked significantly (as we warned), catching up to the market's more hawkish views:
Breaking that down historically, 2025 expectations surged (catching up to the two cuts priced in by the market - from over 6 cuts earlier in the year)...
...and 2026 rate expectations are now at a record high...
The Fed also hiked its inflation forecast:
*FOMC MEDIAN 2025 PCE INFLATION FORECAST RISES TO 2.5% VS 2.1%
The Fed has clearly decided that Trump's policies will be inflationary.
To summarize - The Fed expects lower unemployment than it did in September (barely above where it is now), dramatically higher inflation than it expected, and significantly higher rates.
And the punchline - kiss goodbye to the 2% inflation target...
There was nothing in the statement about QT - suggesting the pace of unwind will continue.
Now the question is - how will Powell spin this?
Read the redline of the statement below:
