The Final Fed Meeting of 2024: What to Know This Week

As the year 2024 draws to a close, all eyes are on the Federal Reserve's final meeting of the year, scheduled for December 17-18. The Fed's assessment of inflation and employment data will shape its policy decisions, with significant implications for global markets. Here's what investors need to know this week.



1. Inflation and Employment Data: The Fed's dual mandate of maximum employment and stable prices will guide its decision-making. As of November 2024, the year-on-year change in the U.S. consumer price index (CPI) stood at 3.5%, indicating a cooling inflation rate. However, the unemployment rate remained at 4.4%, signaling a tight labor market. If inflation continues to ease and unemployment remains stable, the Fed may consider pausing or slowing its rate hikes. Conversely, if inflation persists or unemployment rises, the Fed may continue its tightening policy.

2. Summary of Economic Projections (SEP): The Summary of Economic Projections (SEP) is a crucial tool for the Federal Reserve to communicate its economic outlook and policy intentions. Released quarterly, the SEP provides projections for key economic variables, including GDP growth, unemployment, and inflation, as well as the federal funds rate. In the upcoming Fed meeting, the SEP will likely play a significant role in shaping market expectations for future rate changes. Market participants will scrutinize these projections to gauge the likelihood of further rate hikes or cuts, as well as the terminal rate and the pace of policy normalization.

3. Global Bond Yields and Currency Exchange Rates: The Fed's decision on interest rates will likely impact global bond yields and currency exchange rates. If the Fed raises rates, as expected, bond yields may increase, making bonds more attractive and potentially leading to capital inflows into the U.S., which could strengthen the dollar. Conversely, if the Fed surprises with a rate cut, bond yields may fall, making U.S. bonds less attractive and potentially leading to capital outflows, which could weaken the dollar.

4. Stock Market Impact: The Fed's statement on economic outlook and inflation expectations can significantly impact global stock markets. If the Fed signals a more dovish stance, indicating lower interest rates or a slower pace of tightening, it could boost investor confidence, leading to increased demand for riskier assets like stocks. This could result in a rally in global stock markets, particularly in sectors sensitive to interest rates, such as technology and growth stocks. Conversely, a hawkish statement, suggesting higher interest rates or a faster pace of tightening, could lead to a sell-off in global stock markets, as investors may shift their funds to safer assets like bonds.

In conclusion, the final Fed meeting of 2024 is set to shape global markets, with implications for bond yields, currency exchange rates, and stock markets. Investors should closely monitor the Fed's assessment of inflation and employment data, as well as the Summary of Economic Projections, to make informed decisions. As always, maintaining a balanced portfolio and staying informed about market trends will be crucial for navigating the current investment landscape.