On Wednesday (19th), the Federal Reserve announced the interest rate decision, which reduced the rate by 0.25% as expected, but the pace of future rate cuts is slower than market expectations. According to the latest dot plot, Federal Reserve officials have raised the median interest rate forecast for the end of 2025 to 3.9%, higher than the earlier estimate of 3.4%, indicating that there will be two rate cuts next year.

Zhang Shiqi, the head of wealth strategy and analysis at BOC HONG KONG, stated that the pace of decline in US inflation will slow down, prompting the Federal Reserve to reduce the pace of future rate cuts to manage market expectations proactively.

Zhang Shiqi believes that the pace of decline in US inflation may be influenced by the future direction of fiscal policy, but since the implementation of policies and their transmission to the real economy have a lag effect, the data-driven Federal Reserve will need time to observe economic conditions in order to adjust the rate cut pace. The Federal Reserve Chairman also emphasized that before further rate cuts in the future, new progress in combating inflation must be observed, leaning towards a hawkish stance. Currently, the market generally expects the Federal Reserve to hold rates steady in January next year.

Zhang Shiqi also expects that with the Federal Reserve adjusting the pace of rate cuts, US bond yields will experience a phase rebound during the decline process. (js/u)

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