Investing.com – The Fed sent a shock wave through global markets yesterday, triggering a plunge in US indices that is expected to have serious repercussions on European stock markets this Thursday.
Cryptocurrencies have also been heavily affected, with the cryptocurrencies back below $100,000 at the time of writing, down almost 6% over 24 hours.
Forex also observed a very strong rise in the Dollar, causing the Dollar to return close to its annual low, with a low point at 1.0344 for the moment.
Fed tempers rate cut expectations for 2025
Recall that the Fed as expected cut interest rates by 25 basis points at the end of its two-day meeting on Wednesday, bringing the borrowing rate to a range of 4.25% to 4.50%.
However, rather than being open to further rate cuts in 2025, Chairman Jerome Powell stressed that additional cuts depended on progress made in combating persistent inflation.
As a result, FOMC members now anticipate the benchmark rate falling to 3.9% for next year, suggesting only two 25 basis point rate cuts, compared to an earlier forecast in September of four reductions.
Economic projections from the Federal Open Market Committee (FOMC) showed that inflation was still far from its 2% target, with the targeted measure expected to be 2.4% at the end of the year and at 2.5% next year.
They also show that policymakers now expect slightly higher economic growth and a lower unemployment rate next year, compared to their projections three months ago.
In this context, the Investing.com rate barometer now shows a 91% probability that the Fed will not lower its rates in January, with the next rate increase expected for the month of June.
Is the Post-Fed Crash a Buying Opportunity?
From now on, the question that arises for investors is whether the crash observed yesterday is the start of a lasting bearish phase, or whether it will just be a blip.
To provide some answers, we can first of all point out that the market reaction yesterday was undoubtedly exaggerated by the fact that the stock markets were close to historic records (except for ).
Furthermore, the Fed’s responsibilities are not limited to inflation, the central bank also has the mission of moving the US economy towards full employment. However, signs of weakness in the labor market can be highlighted, which could play a role in the balance, and revive expectations of rate cuts.
Furthermore, we note that on the futures markets, the major US indices seem to be rebounding from yesterday’s lows, which suggests that the decline is already over.
Certainly, caution remains in order, but it is clear that yesterday’s violent movements gave rise to opportunities, which all now remains to be unearthed!
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