Global financial markets reacted strongly to the U.S. Federal Reserve's final policy decision of the year, which delivered the expected 25 basis point interest rate cut but signaled a slower pace of easing in 2025. The Fed's updated dot plot now projects just two 25bp cuts next year, down from four previously, and a higher longer-run federal funds rate of around 3%.

Market Reactions 

U.S. stocks tumbled after the announcement, with the tech-heavy Nasdaq falling 3.6% and the S&P 500 losing 3%. The U.S. dollar surged nearly 1.2% as Treasury yields jumped. Fed Chair Jerome Powell characterised the decision as a "hawkish cut", noting that inflation has made progress but remains somewhat elevated. He indicated that with the fed funds rate now in the 4.25-4.5% range after 100 basis points of cuts, policy is nearing the point where the pace of easing can slow.

Economic indicators such as U.S. retail sales and industrial production were weaker than expected, although consumer resilience persists. In Europe, UK inflation aligned with the Bank of England's forecasts, whereas German business confidence fell to a four-year low, highlighting divergent monetary policy impacts across the region.

In Australia, the November job market offered a positive surprise with unemployment falling to 3.9%. However, high inflation has dampened consumer sentiment, leading to a 1.7% decline in the Australian dollar following the Fed's decision. Commodity currencies generally underperformed as oil prices dropped.

Central Bank Movements 

Meanwhile, the Bank of England and Bank of Japan both held rates steady as widely expected. The BoE remains concerned about sticky services inflation and rising wages, with markets paring rate cut expectations for 2025. The BoJ refrained from adjusting policy for now but is expected to begin normalising as early as January.

With most major central banks now on hold until 2025, the focus turns to how quickly inflation will return to target and how much monetary easing will ultimately be required. For now, policymakers appear content to move gradually, but a worsening growth outlook or failure of price pressures to abate could force their hand. As Fed Chair Powell put it, the road ahead remains foggy, requiring central banks to proceed with caution.

Global Market Trends and Economic Volatility Throughout 2024

In 2024, we saw global markets experience significant volatility alongside robust growth, heavily influenced by political events, notably the U.S. elections. These elections introduced notable volatility, particularly impacting sectors related to the "MAGA trade." Despite these ups and downs, major indices like NASDAQ and S&P 500 managed to post gains, showcasing our resilience amid uncertainties. Surprisingly, European markets also outperformed, with a 6% increase that was not anticipated earlier in the year. Conversely, Australian markets remained stable but showed minimal growth, affected by mixed economic signals and adjustments in global trade dynamics.

Sector-Specific Developments in 2024

In terms of sector-specific developments, technology and major tech stocks continued to dominate our market discussions. The MAG Seven—major tech giants—experienced substantial growth after initial post-election volatility, closing the year on a high note. This contrasts sharply with smaller indices lwhich struggled and ended the year lower. Notably, the automobile sector, heavily influenced by Tesla’s market activity, emerged as unexpectedly volatile, deviating from its traditionally defensive stance.

Looking Forward

The coming year looks to bring new challenges, with an expected U.S. economic boom but also looming risks from restrictive trade and immigration policies under the incoming Trump administration. Much depends on whether inflation can be tamed without a major hit to employment and growth. For Australia, addressing weak productivity will be key to boosting living standards and the economy's resilience to global crosswinds. Only time will tell if 2024's central bank manoeuvring has set the stage for a soft landing or something more bumpy.