The Federal Reserve has concluded its last Federal Open Market Committee (FOMC) meeting of the year, setting the benchmark "federal funds" rate between 4.25% and 4.5% as expected with a 25 basis point rate cut. However, the Federal Reserve's forward-looking forecast for next year's monetary policy has triggered widespread selling pressure in financial markets. The impact on precious metals and stocks immediately became apparent. February gold futures in New York fell $63.9, slightly more than 2.40%, to close at $2599.6.

After the Federal Reserve released its Summary of Economic Forecasts (SEP), the US stock market significantly reversed its earlier gains. The report suggests a more conservative attitude towards interest rate cuts in the coming year. The S&P 500 index fell more than 3% on the day, while the Nasdaq fell nearly 4% on the day.

Jon Faust, who served as Powell's senior advisor before the beginning of this year, accurately predicted that the significance of this meeting lies not in the interest rate decision itself, but in the comments of Fed officials on the 2025 rate cut. As he pointed out, "Now, whether it's a rate cut or no change, it may be reasonable. Officials' views on the path of the federal funds rate may be more important than the decision made at their December meeting

Brian Jacobsen, Chief Economist of Annex Wealth Management, stated that concerns about tariffs may affect the Federal Reserve's forecasts. He pointed out that the Federal Reserve expects fewer interest rate cuts in 2025, a slight increase in inflation, and a moderate rise in unemployment rate. He emphasized that the strong economy has kept the Federal Reserve cautious in cutting interest rates.

This viewpoint is consistent with Federal Reserve Governor Bauman's recent statement that current economic activity makes it difficult to view the current level of interest rates as restrictive. Federal Reserve members have made it clear that they intend to slow down the pace of reducing borrowing costs, citing stable unemployment rates and minimal improvement in inflation. Their current forecast shows that by the end of 2025, the Federal Reserve will only cut interest rates twice by 0.25 percentage points, which is about 0.5 percentage points less than the September forecast.

The transition to the next government in January next year has brought additional economic uncertainty. At a press conference after the Federal Open Market Committee (FOMC) meeting, Chairman Powell acknowledged that it is too early to assess how President elect Trump's proposed economic policies may affect the economy or Federal Reserve policies.

Although the decision to cut interest rates itself is not surprising, the significant correction or "dot plot" of the forecast in the Summary of Economic Forecasts (SEP) suggests that as the Federal Reserve shifts towards a significantly tougher monetary policy in the coming year, this rate cut may be intended to buffer the market.