Federal Reserve Meeting Preview | Dec. 2024

Market expectations are firmly aligned with a 25-basis-point rate cut, as reflected by the CME Group’s FedWatch tool, which currently indicates a 95.4% probability of such an outcome. With a rate cut largely priced in, attention will shift to the Fed’s accompanying statement and Chair Powell’s press conference, which will provide critical insights into the central bank’s forward guidance.

If the Fed signals a readiness to resume its rate-cutting cycle heading into 2025, markets may interpret this stance as dovish, potentially weighing on the U.S. dollar while providing support for Wall Street. Conversely, any indication that the Fed intends to maintain rates for an extended period could bolster the dollar and apply downward pressure on U.S. stock markets.

Market participants are also closely monitoring Friday’s Core PCE inflation data—the Fed’s preferred measure of inflation. While a 25bp rate cut is the consensus for tomorrow, expectations for November’s Core PCE suggest a year-over-year acceleration from 2.8% to 2.9%. Such an outcome could reinforce the Fed’s resolve to hold rates steady for longer, creating downside risks for gold prices as inflationary concerns linger.

In summary, we anticipate a hawkish undertone may emerge from the Fed’s decision and accompanying commentary. Therefore, we hold a positive outlook for the USD’s value. On the stock front, this outlook could slow expectations for a Santa Rally in the final week of the year. How markets react to this event will also depend directly on Fed Chair Powell’s press conference and the dot-plot projections.