Fed's Hawkish Rate Cut Sparks Global Market Reactions

The US Federal Reserve recently cut its key lending rate by 0.25%, setting it between 4.25% and 4.5%. This decision was largely expected, though it was accompanied by a more cautious outlook on future rate cuts. Only two quarter-point reductions are planned for 2025, reflecting uncertainties over potential policy shifts under a second Trump administration. Despite the cut, the Fed's hawkish tone led to significant market movements. The US dollar strengthened against various global currencies, including the yuan and shekel, while stock markets faced declines.

The Fed's forecast of slower rate cuts dampened investor sentiment, causing the S&P 500 and Nasdaq to slump. In Asia, the Hang Seng Index and other regional markets experienced downturns. Fed Chair Jerome Powell highlighted ongoing inflation challenges and a weak housing market, emphasizing a long-term inflation target of 2% by 2027. This cautious approach contrasts with China's more aggressive rate cuts, putting pressure on the yuan. As global markets adjust, the Fed's strategy reflects a delicate balance between managing inflation and sustaining economic growth.