The US stock market is set for a final test this week as the Federal Reserve’s monetary policy meeting comes into focus. Expectations are building that the central bank will cut interest rates by 25 basis points, although some investors are bracing for a “hawkish cut” due to robust economic growth and sticky inflation.
The S&P 500 has gained 27% in 2024, with the Nasdaq breaching 20,000 for the first time ever. The tech-heavy index has surged 32%, outpacing expectations of a 25-basis-point rate cut next week. However, bond yields have risen in recent sessions, taking the benchmark US 10-year yield to a three-week high.
Analysts say that if the Fed moves slower than expected, it could create downside for stocks. The trajectory of monetary policy is closely monitored by investors, and interest rate expectations sway bond yields. The path for rates next year is less certain, with Fed fund futures implying a rate of 3.8% by December.
The Fed’s summary of economic projections will provide insight into policymakers’ views on future rate cuts. Officials penciled in a median rate of 3.4% for the end of next year, down from current levels. The presidential election and potential inflation concerns also weigh on Fed officials’ decisions.
Source: https://www.reuters.com/markets/us/wall-st-week-ahead-fed-rate-view-focus-robust-stocks-year-draws-close-2024-12-13