This week we witnessed the last major event of the year:ย the Federal Reserve (FED) decided to lower interest rates by 0.25%, bringing them to 4.25%. At the beginning of the year, rates were at 5.25%, resulting in a total reduction of 1 percentage point over 2024. However, projections for 2025 suggest that rate cuts will be less significant than those observed this year.
This slower pace of rate reductions reflects the new economic projections released in December, which replaced the estimates from September. These updated figures reveal some interesting trends: the U.S. economy is expected to grow by 2.5% in 2025, up from the previous estimate of 2%. The unemployment rate is also expected to decline from 4.4% to 4.2%. On the other hand, inflationโparticularly core inflation, which excludes food and energyโis projected to rise to 2.8%.
As a result, the anticipated rate cuts in 2025 will likely be smaller than initially expected. On Wednesday, the FED released the Dot Plot, a chart that reflects the expectations of its members for upcoming meetings and the longer term. According to the consensus, rates are expected to stabilize around 3.75% in 2025, indicating only two rate cuts next year. The first is likely to occur in March, with the second expected between May and June. This means a more prolonged period of stable rates before further reductions.
Markets reacted with a significant correction on Wednesday, which is justified by the excessive gains seen in recent months, especially following Donald Trumpโs election, which spurred some euphoria. Therefore, this correction is considered normal.
In my view, there were no major surprises in the FED's announcement. Interest rates will decrease, but at a slower pace than expected. Consequently, U.S. rates rose to 4.5%, and in Europe, rates also began to climb.
However, there are important differences between the monetary policies of the two regions: while the U.S. is expected to cut rates only twice, Europe is likely to reduce rates to around 1.75% next year. This trend has also contributed to the euro's depreciation against the dollar.
๐ฐ ๐๐จ๐ฉ๐ฒ๐๐ซ๐๐๐๐ซ ๐ฐ
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๐ฆ๐๐ฎ๐ฟ๐ ๐ฐ๐ผ๐ฝ๐๐ถ๐ป๐ด ๐บ๐ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐๐ ๐ป๐ผ๐ ๐ฎ๐ป๐ฑ ๐ฒ๐ป๐ท๐ผ๐ ๐๐ต๐ฒ ๐ฎ๐ฑ๐๐ฎ๐ป๐๐ฎ๐ด๐ฒ๐ ๐ผ๐ณ ๐๐๐ถ๐ป๐ด ๐ฎ๐ป ๐ฒ๐ณ๐ณ๐ฒ๐ฐ๐๐ถ๐๐ฒ ๐๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ผ ๐๐๐ฐ๐ฐ๐ฒ๐ฒ๐ฑ ๐ถ๐ป ๐๐ต๐ฒ ๐ณ๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐.
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Consistency is the key to success.
๐ป๐๐ค๐๐๐๐๐๐๐ฃ
๐โ๐ ๐๐๐๐๐๐๐๐ก๐๐๐ ๐๐๐๐ ๐๐๐ก๐๐ โ๐๐๐ ๐๐ ๐๐๐ก ๐๐๐ก๐๐๐๐๐ ๐ก๐ ๐๐ ๐๐๐๐๐๐๐๐๐ ๐๐๐ฃ๐๐๐.