Fed's Surprising Hawkish Tilt Paves the Way for 2025

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? The cryptocurrency market has experienced everything it hoped for in 2024, with enthusiasts optimistic that the rally will persist into the new year. Bitcoin saw significant price movements in December, breaking the $105,000 threshold and reaching a record high of $108,267 on December 17, before retreating to around $95,000 following the Federal Reserve's hawkish stance. Despite this pullback, market sentiment remains strong, fueled by continued demand for cryptocurrency as Donald Trump's inauguration approaches on January 20. The former president has committed to supporting crypto mining, establishing a Bitcoin reserve, and positioning the U.S. as the global "crypto capital."

In its December meeting, the Federal Reserve have lowered its interest rates to a range of 4.25%-4.50%, a move that was widely anticipated by the market. However, Federal Reserve Chair Jerome Powell emphasized that further rate cuts will depend on continued progress in addressing persistent inflation. His comments suggest that policymakers are beginning to consider the potential economic shifts under a potential Trump administration.

Powell's clear and repeated emphasis on exercising caution moving forward unsettled the market, causing investors to revise their expectations for future borrowing cost reductions. While the central bank was initially expected to implement a "hawkish" rate cut, with projections indicating about half the easing in 2025 compared to the 100 basis points policymakers had forecast three months earlier, Powell's comments led the market to adjust, pricing in only a single 25-basis-point cut for the upcoming year.

The unexpected hawkish stance, indicating just two quarter-percentage-point rate reductions by the end of 2025, triggered a sharp rise in the U.S. dollar, pushing its price past the previous month's high and hovering around 108.00 at the time of writing. This strong dollar rally was accompanied by a noticeable impact on risk-averse assets, such as gold. The spot gold price experienced a decline of more than 2%, falling to its lowest point since November 18. As of now, gold is trading at approximately 2633.00, reflecting the broader market shift.

In the coming months of next year, the market is expected to experience increased volatility as it anticipates the impact of Donald Trump's inauguration and how his policies might influence the economy and Federal Reserve's interest rate decisions. U.S. investors are preparing for a range of changes in 2025, including new tariffs, deregulation, and tax policy shifts, all of which could have significant effects on the markets. Despite these uncertainties, market optimism remains strong, with expectations that robust economic growth under Trump administration will likely continue to support the strength of the dollar.

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