Markets Stall Ahead of Fed Decision
As the Federal Reserve prepares for its final meeting of 2024, the stock market rally has come to a halt. Last week, the Nasdaq Composite was the only major index to post a gain, rising just over 0.3%. In contrast, the S&P 500 fell by 0.6%, while the Dow Jones Industrial Average dropped nearly 2%, dragged down by weak performance in healthcare stocks. The Dow has now recorded seven consecutive losing sessions, marking its worst streak since February 2020.
Key Economic Events to Watch
This week is packed with significant economic data and events, with the spotlight on the Fed’s interest rate decision scheduled for December 18. Markets widely anticipate a 25-basis-point rate cut, and investors are keenly focused on Federal Reserve Chair Jerome Powell’s remarks on the 2025 policy outlook during his press conference on Wednesday at 2:30 p.m. ET.
Other important economic data expected this week include:
- November retail sales figures
- Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation measure
- Service and manufacturing sector activity reports
On the corporate side, earnings reports from Micron Technology, Nike, FedEx, and Carnival Corporation are also expected.
Rate Path and Market Expectations
According to the CME FedWatch tool, markets currently see a 97% probability that the Fed will reduce rates by 25 basis points at its December meeting. However, recent data showing strong economic growth, a resilient labor market, and a bumpy road to achieving the Fed’s 2% inflation target suggest that rate cuts in 2025 could be more limited than previously thought.
Investors will closely monitor the Fed’s updated Summary of Economic Projections (SEP), which includes the widely watched “dot plot.” This chart outlines policymakers’ expectations for future interest rate levels and will provide insights into the Fed’s view of the economy’s trajectory. Powell’s press conference is also expected to shed light on the central bank’s policy intentions.
In its September dot plot, the Fed projected the federal funds rate would range between 3.25% and 3.5% by the end of 2025. However, Bloomberg data now indicates that markets are pricing in just two rate cuts for 2025, down from the four cuts initially anticipated in September.
Potential Economic Forecast Adjustments
Analysts suggest that the Fed’s economic forecasts could show stronger-than-expected growth and firmer inflation for 2024. As a result, the dot plot may reflect three rate cuts for 2025, rather than the four cuts projected in September.
Conclusion
The Fed’s final meeting of the year will take center stage this week, with its interest rate decision and Powell’s comments expected to significantly influence market sentiment and asset pricing. Investors should pay close attention to updates in the dot plot, economic data releases, and Powell’s press conference to better understand the Fed’s policy direction and prepare for potential market movements.
