The Hawkish Cut
The Fed gave markets exactly what they expected on the cut — but then dropped a dot plot that felt like a cold splash of water. Just two cuts projected for 2025, not four.
December 2024The Surprise Wasn't the Cut
Markets went into the meeting pricing roughly three cuts for 2025, maybe shading toward four. The September dot plot had signaled four; now it's down to two.
Powell stressed the economy is strong — solid growth, low unemployment, inflation still above target but moving down. Translation: no urgency to slam rates lower.
That nuance caught a lot of leveraged positioning wrong-footed.
Rate Repricing Begins
The 10-year Treasury yield spiked over 20 basis points in the aftermath, pushing convincingly above 4.4%. The curve steepened as longer rates repriced higher growth and inflation risks.
The dollar followed suit — DXY up nearly 2% in days, its best stretch in months. Higher-for-longer U.S. rates reasserted the yield advantage.
Fixed income got hit hardest, but the spill-over into risk assets was real. Growth stocks took the biggest beating.
Year-End Positioning Unwind
December is always tricky — thin trading desks, tax-loss harvesting, portfolio rebalancing, and window-dressing flows. Layer a hawkish surprise on top and you get exaggerated moves.
The Nasdaq dropped sharply, small caps gave back gains, and even the Trump-trade cyclicals paused.
It felt disorderly because it was. But these year-end air pockets often prove fleeting once liquidity normalizes in January.
The Bigger Picture
Here's the part markets might be missing: a slower cutting path is actually a bullish signal. It means the Fed sees sustained growth, resilient consumers, and no imminent recession.
Corporate America is in great shape — balance sheets flush, margins high, AI investment surging. A couple fewer cuts doesn't derail that.
We're viewing the pullback as noise, not signal. Quality growth and AI leaders look particularly compelling here.
Vector Ridge remains overweight U.S. equities and AI infrastructure, adding selectively on weakness.