Federal Reserve Meeting: Key Test for Ongoing Stock Rally
The upcoming inflation data set to be released next week could have a big impact on the ongoing stock market rally and the Federal Reserve’s decisions on interest rates. The S&P 500 has been on a strong upward trend, gaining over 27% since the start of the year and is poised for a third consecutive week of gains.
Investors are hopeful for further rate cuts by the Fed, despite signs of a robust economy. Strong job growth numbers released on Friday reinforced this optimism. However, all eyes are now on the consumer price index report due on Wednesday, which could challenge the positive outlook if inflation numbers exceed expectations.
The likelihood of a rate cut at the upcoming Fed meeting has strengthened following the November employment report, which showed a substantial increase in jobs. According to the CME FedWatch tool, there is nearly a 90% probability of a 25 basis point rate cut.
If inflation turns out to be higher than anticipated, it could potentially lead to a “hawkish cut” instead, with the Fed tempering expectations for future rate reductions in 2025. This concern is further fueled by President-elect Donald Trump’s proposal to increase tariffs on imports, which could drive up inflation.
Despite concerns about the stock market’s optimism and potential overvaluation, some investors remain positive about the market’s prospects going into the year-end, typically a strong period for equities. While uncertainties remain, investors are keeping a close watch on the upcoming inflation data and the Fed’s decision on interest rates.
