"Fed Slows Down Rate Cuts... Indicates Two Rate Cuts in 2025"

Sharp Brake from Previous 4 Rate Cuts
Significant Upward Revision of Inflation Outlook
Trump Factor Not Reflected in Monetary Policy

The U.S. Federal Reserve (Fed) has indicated a slowdown in the pace of interest rate cuts. Following three consecutive rate cuts this year, the Fed announced plans for four cuts in 2025, but at the December Federal Open Market Committee (FOMC) meeting, it suggested only two rate cuts next year.

On the 19th, Huh Jae-hwan of Eugene Investment & Securities stated, "At the September FOMC, the 2025 dot plot was at 3.4%, but after the December FOMC, the 2025 dot plot was significantly raised to 3.9%." Moreover, more than four out of 19 Fed officials expected the benchmark interest rate to be above 4.0% next year.

Researcher Huh explained, "This means that interest rate cuts are not necessary for the U.S. economy, but uncertainty about the direction of monetary policy has increased due to the Trump administration's policies."

The key question is whether the U.S. economy and companies can generate growth and profits even with interest rates in the 4% range. Researcher Huh evaluated, "If the nominal growth rate of the U.S. remains above the high 4% range, the U.S. economy and companies can achieve profitability."

Accordingly, the U.S. stock market is also expected to face a higher possibility of correction. Researcher Huh analyzed, "The S&P 500 index has risen more than 40% from its 52-week low. Except for extreme cases such as the global financial crisis and COVID-19, it is uncommon for U.S. stocks to rise more than 40%, so the U.S. stock market is likely to take a breather around the year-end and early next year."

The domestic stock market also faces limited room for maneuver due to the pressure of a strong dollar, which burdens the Bank of Korea's rate cut stance.

Researcher Huh diagnosed, "In past phases of rising won-dollar exchange rates, sectors with rapid operating profit growth were energy, machinery, shipbuilding, transportation, automotive, and essential consumer goods, in that order. Although the Trump tariff burden remains, there could be interest in machinery, shipbuilding, and transportation sectors that may benefit from the revival of U.S. manufacturing and the phase of securing pre-tariff volumes."