Fasten your seatbelts, as new economic data may force markets to become more volatile. Markets expected the US Federal Reserve to continue its aggressive rate-cutting campaign, which saw rates reduced by 50 basis points and 25 basis points in the last two FOMC meetings, respectively.
However, last week Fed Chair Powell had other plans. Speaking at an event, Powell clarified that there are no immediate signals to rapidly lower the benchmark interest rate due to the strength of the economy. He stated that the economy does not indicate a need to rapidly lower its benchmark interest rate, stating that there are no immediate signals. Since then, stocks have been under pressure.
The FOMC will meet on December 16-17 to decide on the next steps in monetary policy.
Remember that Trump wants an economy with lower interest rates, whereas Powell has a specific goal in mind – to reduce inflation.
Powell stated that the Fed is still in rate-cutting mode, but that the route forward is unclear. He emphasized the need for cautious market guidance due to economic uncertainty, suggesting that gradual easing could help the Fed support the economy and job market to prevent a recession.
Powell is cautious as the war against inflation is still not over.
U.S. Producer Price Index (PPI) rose 0.2% month-over-month in October, exceeding the 0.1% recorded in September.
The indicator measures wholesale price changes, reflecting inflationary pressure. An increase in this indicates short-term consumer price rise, potentially hindering aggressive interest rate cuts despite the Fed’s cautious stance.
Earlier, the Core Producer Price Index, which excludes food and energy, increased by 0.3% in October, indicating persistent inflationary pressure in the economy and highlighting the need for careful monetary policy decisions, as it excludes volatile items.
Inflationary pressure complicates monetary policy decisions, and the market is in a wait-and-see mode until economic indicators provide a clearer direction of the U.S. economy, with caution likely dominating in the short term.
The December 16-17 FOMC meeting is the next important milestone for the markets as it also comes with a statement of economic indicators and the Fed’s Dot Plot. November 2024 CPI data are scheduled to be released on December 11, 2024. November 2024 PPI data are scheduled to be released on December 12, 2024.
At the start of 2024, two big events were expected to influence markets: US elections and the US Fed’s rate-cutting effort. Now that both are done with, it remains to be seen how the markets will perform until the end of 2024. Till then, expect a lot of news-led market moves.
Dow 30 has gained 15% while S&P 500 and Nasdaq 100 are up by over 20% respectively, so far in 2024.