The Federal Reserve implemented a rate cut of 25 basis points in December, bringing the range down to 4.25 to 4.50%, as expected by the market. Everbright's international securities strategist, Wu Lixian, believes that this interest rate meeting provided a substantial amount of information, giving every investor at least three important insights.

First, the Federal Reserve announced a new round of dot plots during this interest rate meeting. Comparing with the dot plot from September, 19 Federal Reserve officials adjusted their target interest rate expectations for the end of 2025 from a median of 3.375% three months ago to the latest forecast of 3.875%. In other words, over the past three months, the Federal Reserve has slowed its expectations for rate cuts next year by 50 basis points. The market's view has also shifted due to the Federal Reserve's adjustments, with the Interest Rates futures market showing that the maximum probability for the median interest rate at the end of 2025 has changed from 3.875% before the meeting to 4.125% after the meeting, reflecting a more cautious outlook on rate cuts.

Second, in addition to the anticipated changes in short-term interest rates, the latest dot plot reflects that Federal Reserve officials raised their median long-term target interest rate expectation from 2.875% in September to 3%. This indicates a narrowing revision in the cumulative extent of rate cuts expected during this cycle. In summary, compared to three months ago, the Federal Reserve wishes to quickly lower interest rates in the short term, while now leaning towards extending the adjustment period and gradually reducing rates, thereby potentially shrinking the total extent of cuts in the current cycle.

Third, during this interest rate meeting, Federal Reserve officials forecasted that the GDP growth for the USA next year will be 2.1%, with an unemployment rate of 4.3%, and the Personal Consumption Expenditures price index (PCE) and core PCE expected to be 2.5%. Compared to three months ago, these figures reflect that while the USA economy remains resilient, the chances of a smooth economic transition are increasing, further alleviating market concerns about a 'hard landing.'

Although the three insights above have both positive and negative aspects, investors may be more concerned about current changes in the interest rate environment, thus this interest rate meeting will likely add opportunities for market volatility.