Amid Trump’s investment, rally of themed stocks such as AI and quantum computers, and surging Bitcoin, the market had forgotten about the Fed. It had always forgotten that it was the Fed that changed the trend in an instant. No, it was always like that. When the market was enjoying greed amid FOMO, the Fed removed the punch bowl from the table and ended the party. The outlook for the U.S. stock market next year is rosy, but Fed Chairman Jerome Powell has sent a signal that he will end the party in the near future. It was at the FOMC meeting last Wednesday. He seemed hesitant as he cut interest rates by 25 bp. Cleveland Fed President, who became a new FOMC member, even voted against it.

Powell even said that he would be cautious about cutting interest rates in the future. It is a remark that has changed too much even if it is different from just a few months ago. The Fed’s board of directors and the Federal Reserve Bank of Korea’s dot plot also predicted that there will be only two rate cuts by the end of next year. Why is the Fed so nervous when the fundamentals don’t seem to have changed much? Because the Fed is still faithful to the fundamentals. Achieving the 2% inflation target is its fundamental purpose. The measure of inflation is personal consumption expenditure (PCE) inflation. The PCE, which had been steadily falling until August, has reversed its rise. It jumped from 2.1% to 2.4%. The Fed decided that it could not lower interest rates at this rate. Trump will never help either. Tariff hikes and tax cuts will be factors of inflation. Contrary to expectations, the asset market is likely to be a thorn in the side next year.

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