The CME FedWatch Tool indicates a 67% probability of a 25 basis point rate cut at the Federal Reserve’s December 18 meeting.
This comes as the U.S. stock market continues its strong performance, with the S&P 500 ($SPX) hitting record highs last week. November’s gains, up 3.42%, marked one of the strongest rallies in recent years. However, this week’s economic data releases remain pivotal for market sentiment.
Key economic data to watch this week
Investors will closely monitor upcoming reports on the labour market, manufacturing, and consumer spending. Monday starts with the ISM Manufacturing PMI, which has been signalling contraction for months. A better-than-expected reading could support cyclical stocks, while further contraction may raise concerns about slowing growth.
Tuesday brings the JOLTS Job Openings report. A decline in openings may reinforce rate cut expectations, potentially boosting market optimism. Conversely, stronger data could dampen such hopes. The ADP Employment Change, due Wednesday, will offer a preview of labour market conditions ahead of Friday’s Non-Farm Payrolls. Markets could respond positively to any weakness in these numbers, as it might reinforce Fed easing expectations.
Source: CME Group
On Thursday, the spotlight turns to Initial Jobless Claims. Any increase in claims could support the narrative of a cooling economy, while lower claims may temper optimism over a potential rate cut. The week’s highlight will be the Non-Farm Payrolls on Friday. After October’s weaker-than-expected results, investors will look for continued labour market softening. Wage growth and the unemployment rate will also be closely analyzed.
Fed meeting and interest rate outlook
As the Federal Reserve gears up for its December policy meeting, a 0.25% rate cut is widely anticipated. This would mark the Fed’s third rate reduction this year. While the cut is largely expected, attention is shifting to the Fed’s 2025 outlook. In September, projections suggested four rate cuts for 2025, but market sentiment now points to only two.
The Fed’s updated forecast on December 18 could provide further clarity on the pace of future rate adjustments. Currently, the federal funds rate stands at 4.5%-4.75%, which many analysts agree is restrictive. The debate centers on how much further easing is appropriate, particularly with inflation remaining resilient.
Bitcoin and crypto markets surge
While traditional markets focus on Fed policy, digital assets remain bullish. Bitcoin is nearing the $100,000 milestone, having surged 128% year-to-date. The broader cryptocurrency market cap is approaching $3.5 trillion, underscoring strong investor interest. Economic data this week and the Fed’s December decision will likely set the tone for both traditional and digital asset markets heading into 2024.