Under the Federal Reserve's hawkish stance, how will the US stocks, US dollar, gold, and crypto perform?

The Federal Reserve will announce its interest rate decision this week (December 10th, Eastern Time). The market widely expects a 25 bps rate cut, adjusting the interest rate range from 3.75%-4.0% to 3.50%-3.75%. However, divisions within the Federal Reserve are intensifying, with some institutions predicting a possible “hawkish rate cut”—a rate reduction accompanied by cautious signals. Deutsche Bank strategist Jim Reid pointed out that the tone of Chairman Jerome Powell’s press conference will be crucial, and it is expected that he will emphasize that the threshold for further rate cuts in early 2026 is very high, implying a possible pause in rate cuts in the short term.

US Stocks Face Profit-Taking Pressure

JPMorgan believes that after the Federal Reserve’s rate cut, the recent rally in US stocks may face profit-taking shocks. Strategist Mislav Matejka stated, “Investors tend to lock in gains at the end of the year rather than increase directional exposure. The current rate cut expectations are fully reflected in stock prices, and the stock market has returned to high levels.”

Nevertheless, JPMorgan remains optimistic about the medium-term outlook. The institution believes that further rate cuts by the Federal Reserve, reduced trade uncertainties, and factors like AI will continue to support the stock market.

Hawkish Tone Supports US Dollar, Impacting EUR/JPY and EUR/USD

If the Federal Reserve signals a hawkish stance, it is expected to boost the US dollar, thereby pushing up USD/JPY and impacting EUR/USD performance.

ING Group forecasts that the EUR/USD target price for this week is 1.17, with a potential rise to 1.18 by the end of the year. Regarding the Japanese yen, opinions diverge—ING expects the yen to strengthen (USD/JPY decline), while Bank of America Securities believes that due to Japan’s fiscal risks, USD/JPY will rise. Investors should pay close attention to the Bank of Japan’s interest rate decision on December 19th next week.

Gold Faces Short-Term Pressure, Long-Term Outlook Uncertain

A hawkish rate cut will drive the US dollar higher, putting short-term downward pressure on gold prices. Conversely, if the Federal Reserve signals more easing, gold is expected to rise. State Street Global Advisors pointed out that after a significant increase in gold prices in 2025, the rally may slow noticeably next year.

Bitcoin’s Key Lies in Liquidity Signals

The market generally expects the Federal Reserve to announce the initiation of “Reserve Management Purchases (RMP)” at this week’s meeting to increase systemic liquidity. This will mark the first time since quantitative tightening that the Federal Reserve has signaled a sustained expansionary policy.

Historical data shows that Bitcoin is far more sensitive to liquidity cycles than to policy interest rate changes. If Powell acknowledges labor market weakness and clearly outlines the RMP plan, it will be favorable for Bitcoin to rise. Conversely, if Powell emphasizes policy caution or delays disclosing RMP details, it will negatively impact Bitcoin.

The current Bitcoin price is $87.87K. Investors should closely monitor the liquidity hints in the Federal Reserve chairman’s statements to gauge the future trend.