Last Wednesday, Dec. 18, 2024, the Federal Reserve cut interest rates by 25 basis points. Fed Reserve officials are expecting to slow their rate cuts in 2025. The central bank is bracing for the government to impose aggressive 25% tariffs against Mexico and Canada. It will have higher tariffs against China.
Tariffs will increase the cost of goods for Americans, raising inflation rates. To counter that, the Fed does not want to heat the economy by lowering rates. Markets priced in the Fed’s future decisions by sending bank stocks lower. JPMorgan Chase (JPM) fell by around 1% last week. Citigroup (C) fell by 2.56%.
The rally in Wells Fargo (WFC) stock ended in late November, closing down by 4.4% in the month. Investors should anticipate unemployment rates to hold steady in 2025. This will deter the Fed from cutting rates further.
The meaningfully restrictive monetary policy helps the U.S. dollar. The DXY and UUP ETFs should rise in the next year as investors accumulate the USD.
Risks
In the last few years, the U.S. jobs reported benefited from aggressive government job hiring of around 50,000 a month. The Federal debt is growing, while interest costs pile up. Hedge the USD by holding Bitcoin and gold. Gold miners like Barrick Gold (GOLD) and Newmont Mining (NEM) are trading at lows not seen since the Spring of 2024.
