The Hawkish 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.

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.

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.

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.