According to Caixin News on November 19 (edited by Bian Chun), on Wednesday, the Federal Reserve resorted to a hawkish interest rate cut stance, causing significant damage to the US stock market. In this regard, Jeremy Siegel, an honorary professor of finance at the Wharton School of the University of Pennsylvania, stated that the sell-off in the US stock market is "healthy," and the Federal Reserve's cautious outlook on future interest rate cuts has made investors "face reality."

As expected, the Federal Reserve lowered interest rates by 25 basis points at its last meeting of the year, bringing the target range for the federal funds rate to 4.25% - 4.5%. Meanwhile, the dot plot of the Federal Open Market Committee (FOMC) predicts that there may only be two more rate cuts by 2025, down from the four rate cuts projected in September.

This has disappointed investors, as all three major US stock indices fell over 2.5% on Wednesday, with the Dow Jones Industrial Average dropping for the tenth consecutive trading day, setting the longest losing streak since 1974. Investors have been betting that the Federal Reserve would cut borrowing costs more aggressively.

The Federal Reserve may not cut rates next year.

"The market was almost out of control before... this made them realize that we won't be able to get such low rates as investors bet when the Federal Reserve begins a cycle of easing," Siegel stated in a recent media interview.

The market is overly optimistic... So, I am not surprised by the sell-off in the (stock market)," Siegel said, adding that he expects the Federal Reserve to reduce the number of rate cuts next year, only cutting rates once or twice.

He stated that with the FOMC raising future inflation expectations, it is also possible that there will be no rate cuts next year.

The Federal Reserve's latest projections show that officials expect the core personal consumption expenditure price index (excluding food and Energy costs) to remain at a high of 2.5% by 2025, still well above the Federal Reserve's 2% target.

Siegel stated that some FOMC officials may have already taken into account the inflation impacts from potential tariffs. USA President-elect Donald Trump vowed to impose additional tariffs on countries such as Canada and Mexico on his first day in office.

However, Siegel noted that given Trump's possible desire to avoid a significant market correction, actual tariffs may not be "as large as the market fears."

According to CME Group's Fed Watch tool, market participants currently expect the Federal Reserve's next interest rate cut to be in June of next year, with a 43.7% chance of a 25 basis point cut.

Barclays' chief USA economist Mark Zandi maintains the bank's basic forecast, which considers the impact of tariff increases, that the Federal Reserve will only cut rates twice next year, in March and June. He expects the Federal Reserve to resume gradual rate cuts around mid-2026 once tariff-induced inflation pressures dissipate.

Morgan Stanley now anticipates that the Federal Reserve will cut rates twice in 2025, each by 25 basis points, whereas the previous forecast was for three cuts of 25 basis points each.

Jack McIntyre, the portfolio manager of Brandywine Global Investment Management, stated that the Federal Reserve has entered a new phase of monetary policy - the pause phase. He pointed out that the longer the pause phase lasts, the more likely the market is to equally price in both interest rate hikes and cuts, and the uncertainty of the policy will make the financial markets more volatile in 2025.

Editor/lambor