At the beginning of 2025, the U.S. financial markets will experience significant changes. The Fed announced a reduction of the federal funds interest rate target range by 25 basis points, with the new range set at 4.00%-4.25%. This decision marks the first rate cut action in 9 months since December 2024.

The outlook from Fed policymakers indicates that there will be further space for interest rate cuts in 2025. It is expected that there may be a reduction of another 50 basis points over the next year, and a potential cut of 25 basis points each in 2026 and 2027. Notably, Fed Governor Milan expressed dissent at this meeting, advocating for a more aggressive cut of 50 basis points.

Among the 19 Fed officials, expectations for interest rate cuts in 2025 are diverse. Most officials lean towards a cumulative cut of 75 basis points, equivalent to three cuts over the year. However, some officials hold differing views, ranging from no rate cuts to a significant cut of 150 basis points.

The Fed has also raised its expectations for U.S. economic growth. The median GDP growth rate expectations for the end of 2025, 2026, and 2027 have been adjusted to 1.6%, 1.8%, and 1.9%, respectively, which is an increase from the expectations in June.

Fed Chairman Powell delivered an important speech at the subsequent press conference. He hinted that the Fed is shifting its policy focus from strict inflation control to paying attention to the labor market. Powell pointed out that the U.S. labor market is experiencing a cooling process, which prompts the Fed to adopt a more neutral stance in policy-making.

This series of measures reflects the Fed's cautious assessment and flexible response to the economic situation. With the easing of inflationary pressures, the Fed is seeking to strike a balance between maintaining economic growth and employment stability. This interest rate cut decision and future policy direction will have a profound impact on the U.S. and even global economies, and all market participants will closely monitor the Fed's subsequent moves.