The Federal Reserve’s upcoming interest rate decision, set to be announced at 3:00 AM Beijing time on Thursday, has captured the attention of investors worldwideThis could potentially mark the last rate cut of 2024, making it an event of substantial significanceAs the pace of rate cuts shifts from "fast lane" to "slow lane," global markets face an emerging wave of uncertainty.

The stakes of this decision are highIt's not just about the 25 basis point cut, but also whether this marks a pivotal turning point in the Fed’s rate-cutting cycle, and how Chairman Jerome Powell will set the tone for monetary policy in the coming yearInvestors are anxious, with questions swirling about the potential economic signals this decision might send for the global economy.

Looking back on 2024, the Fed’s rate cuts could be described as a "blitzkrieg." Since September, a series of rapid cuts has pushed the cumulative reduction to 100 basis points

Yet, despite this aggressive stance, the economic signals are starting to make the narrative of continued easing seem less straightforwardThe labor market shows signs of stability, and inflation has ticked up slightlyThe Fed's decision-makers are caught in what seems to be a fierce internal debate: Should they continue cutting rates to stimulate growth, or pause to assess the situation? Against this backdrop, Powell’s press conference tonight is expected to be closely scrutinized, as his every word could set the tone for rate cuts in 2025.

The Likely Rate Cut: But Will the Pace Slow?

According to market pricing, the probability of a 25 basis point rate cut tonight exceeds 95%. However, the larger question looming over this meeting is whether the Fed will signal a pause in rate cuts starting in January 2025. Recent statements from Fed officials suggest that there is a growing consensus around the need for more "clear economic signals" before pushing for further cuts

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Cleveland Fed President Loretta Mester, for instance, has stated that the Fed is nearing a point where it would slow the pace of easingThis somewhat "hawkish" tone appears to be preparing the market for a more cautious policy adjustment in the near future.

The Dot Plot: A Window into the Future

Beyond the rate cut announcement, another crucial element that investors will be watching is the Fed's dot plotGoldman Sachs has forecast that the number of rate cuts expected in 2025 could be reduced from four to three, with the long-term neutral interest rate potentially being raised to 3%. This change would signal a more optimistic outlook for the economy, but also hint at growing concerns about long-term inflation risksA shift in the dot plot might suggest that the Fed believes economic conditions are strengthening, but it could also reflect a heightened vigilance against inflationary pressures that could resurface as the economy grows.

Powell and the “Policy 2.0” Era

Another significant question that looms over tonight’s meeting is how Powell will address the broader structural shifts in U.S

policy under the new "Policy 2.0" eraThe U.Sgovernment’s stance on trade protectionism, tightening immigration policies, and potential tax reforms could have deep and lasting impacts on economic growth, employment, and inflation in the coming yearsThere’s speculation that Powell may offer signals about how these policy changes might affect monetary policy decisions in 2025 and beyondFor many, this could be one of the key takeaways from tonight’s press conference.

Are We Moving Too Quickly?

While rate cuts are generally seen as supportive of economic growth, some analysts are starting to express concerns about the sustainability of this rapid easing cycleLooking back at the 1990s, the Fed took a similar approach, slashing rates by 75 basis points over a short period, before choosing to pause and wait for the economic effects to materializeThis historical precedent has led some to wonder whether the current cycle of quick cuts may be too aggressive, and whether the Fed will leave the door open for a "pause" in rate cuts tonight.

In the grand scheme of the global market, tonight’s Fed decision is more than just a simple rate cut

It is a stone being thrown into a calm lake, with ripples that may affect the direction of global economic policiesThe smallest shift in the dot plot could serve as a crucial "signpost" for future policy decisions, guiding market participants toward potential trends in interest ratesPowell’s comments, too, will likely act as the "conductor’s baton" for market sentiment, with every word potentially influencing investor confidence and expectations, and thus shaping the future movements of various asset classes.

For many investors, this is not just a decision on interest rates; it’s about understanding the Fed’s long-term strategyIf Powell’s tone is hawkish, signaling a more cautious approach to future cuts, the markets may need to adjust their expectations of further easingIf he is dovish, it could be a signal that the Fed remains focused on supporting the economy at all costs.

The broader impact of this meeting will be felt across financial markets

Stocks, bonds, and currencies all stand to be affected by the outcomeThe U.Sdollar could either strengthen or weaken based on how Powell's comments are interpreted, while bond yields are also likely to fluctuate in response to any changes in the Fed’s stanceEquities, particularly in interest-sensitive sectors like real estate and utilities, may react sharply to any shifts in the Fed’s forward guidance.

What is certain is that the road ahead is not without riskThe global economy remains in a delicate balance, with many countries still recovering from the economic fallout of the COVID-19 pandemicThe Fed’s decisions, therefore, will not only shape the trajectory of the U.Seconomy but also send ripples through the global financial system.

As investors brace for this critical decision, one thing is clear: the Fed’s actions tonight will not just be about the immediate impact of a 25 basis point cut