The Federal Reserve cut its influential fed funds rate this afternoon for the third time in as many meetings. Follow along with our live coverage of the Fed meeting. https://t.co/qy3Gmg3baz ...

Delphi Digital said on X that the Fed delivered another 25 bps cut in December, taking the fed funds rate to ~3.50–3.75%. The forward curve prices at least three more cuts through 2026 (low-3% by year-end). With QT ending on Dec. 1, a TGA drawdown, and the RRP fully depleted, this is the first net-positive liquidity backdrop since early 2022—turning policy in 2026 from a headwind to a mild tailwind. https://t.co/2FTusuwCuB ...

Market Expectations & Rate Cut Probabilities - Market participants initially interpreted the inflation data as a signal for the Federal Reserve to cut rates, with some pricing in near certainty and even anticipating up to four rate cuts for the remainder of the year [2][3] - The market's reaction suggests a belief that the Fed can now focus on the labor market and cut rates without excessive concern about inflation, leading to small caps outperforming due to their interest rate sensitivity [6] - There's a perception that the Fed has some leeway to cut rates, especially given the labor market conditions, and that a rate-cutting cycle, if significant, would be very beneficial for the market [8][9] Inflation Data Analysis - The headline inflation number initially excited the market, but a closer look revealed it might be "a little hotter than expected," reinforcing the idea that inflation remains a problem [2] - Core inflation was noted as being the highest since the start of the year, indicating that the inflation data wasn't entirely positive and had some underlying heat [4][5] - The inflation data showed some signs of giving ground, which, combined with potential cracks in the labor market, could provide the Fed with justification to cut rates [5] Bond Market Reaction - The ten-year Treasury yield initially pulled back on the report but then bounced higher, finishing the day almost unchanged, indicating uncertainty or mixed signals in the bond market's interpretation of the data [4] Economic Indicators & Market Valuation - Concerns are raised about applauding the stock market's performance given a GDP growth of 125% (it seems there is a typo here, it should be 125 basis points or 125%) and unemployment growth of 270% (it seems there is a typo here, it should be 270 basis points or 270%), with the Fed funds rate at 45% (it seems there is a typo here, it should be 450 basis points or 450%) [10] - The stock market is trading at all-time highs, with valuations around 225% to 240% (it seems there is a typo here, it should be 225x to 24x) times forward earnings, suggesting potential overvaluation [11] - The market's behavior is considered odd, suggesting that the economy might be starting to flex, and market participants are chasing that momentum [12]