A rate cut is widely expected in 2024, but if the Fed remains "hawkish" at Wednesday's meeting, investors' expectations for the market will change, possibly by the end of the year.
Alex McGrath, chief investment officer at Northend Private Wealth, believes that there is no upcoming report that will cause the Fed to change its monetary policy stance. He said,Expectations of a Fed rate cut next year have supported the near-term and bond markets.
Since July 2022, the Federal** interest rate has remained at 525% to 55% range, a 22-year high. After a 2022 year, the U.S. experienced a strong recovery in 2023, especially with a sharp increase in November.
According to Dow Jones market data, as of Friday, the Dow Jones Industrial Average was just 1. below its highest price about two years ago5%。Meanwhile, the S&P 500 reached its highest price since March 2022. The Nasdaq hit a new high since April 4 last year. At the same time, the yield on 10-year Treasuries fell sharply from a 16-year high of 5%, and bonds ***
But the market is divided on the direction of Fed policy. According to Melissa Brown, senior director of applied research at Axioma, the Fed and investors have not yet fully agreed on when the Fed will begin to ease monetary policy. In addition, based on data from the federal market, traders' appetite for rate cuts has also been changing over the past few months.
Friday's bond market performance suggests that investors may be reassessing the direction of interest rates in 2024. High-risk bonds, such as the JNK and HYG high-yield bond ETFs, are often seen as indicators of market sentiment, and although these bonds have attracted a lot of money in recent weeks, they have been paused by the decline in the underlying cost of borrowing**. At the same time, the rise in 10-year and 30-year Treasury yields reflects investors' uncertainty about the future direction of the economy and policy since mid-October.
And, it is almost certain that the Fed will not cut interest rates at its last meeting of the year this week. The CME Fed Watch Tool showed that the Fed had 98 percent at this meetingThere is a 4% probability of keeping the interest rate at 525%-5.5% level.
In addition, Nick Timiraroos, a well-known financial journalist known as the "New Fed News Agency", also pointed out in his latest article:
The Fed** is unlikely to have a serious discussion about when to cut rates this week, and unless the economy weakens more than expected, it is unlikely that there will be (serious discussions) in the coming months.Ed Clissold, chief U.S. strategist at Ned D**is Research, expressed skepticism about the market's chances of a rate cut early next year. He said the Fed's shift from tightening monetary policy to a gradual process will take place. The Fed is likely to gradually shift from a hawkish stance to neutrality before considering a rate cut.
Mike Sanders, head of fixed income at Madison Investments, is equally cautious. He believes that the market's expectations for a rate cut in March next year are too aggressive, and it is more likely that the Fed will start cutting rates in the second half of next year. He mentioned that the recent U.S. jobs report showed 199,000 new jobs added in November, beating expectations of 190,000, wages**, and the unemployment rate fell to 3., given the continued strength of the labor market, which led to stubborn inflation in the services sector7%, the lowest in four months. Sanders believes that the data shows that there are no signs of economic weakness that the Fed needs to act on to reduce inflation.
Sanders believes that the Fed may continue to be "hawkish". This attitude may be reflected in the "dot plot" interest rate** to be released on Wednesday. In addition, although the Fed paused interest rate hikes in September, the statement reinforced its commitment to "maintain high interest rates for a long time". Sanders also stressed that inflation is likely to accelerate again, and the Fed is more worried about inflation, so it is unlikely to ease policy prematurely. Ahead of the Fed's decision, updated data on the Consumer Index (CPI) and Producer Index (PPI) for November will be released, which will have a direct impact on the Fed's decision to cut interest rates.
It is worth noting that, despite this, there are also positive voices in the market. Marketwatch notes that seasonality could have a positive impact on December. Based on historical data, whether bull or bear, the Dow Jones Industrial Average has been in the Dow Jones Industrial Average 70% of the time in December.
Clissold, chief U.S. strategist at Ned D**is Research, said the overall market outlook remains positive. He mentioned that if the US economy can achieve a "soft landing", it will help the current market continue to be bullish.
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