Washington, DC: The world’s eyes are on Jerome Powell as he is widely expected to declare another rate cut following the Federal Open Market Committee (FOMC) meeting of the United States Federal Reserve (US Fed) on December 10. At its October meeting, the US central bank cut interest rates by 25 basis points (bps) after evaluating economic data and prevailing US economic conditions.
For Fed Reserve Chair Jerome Powell, this could be a particularly challenging decision as an increase in interest rates could eventually affect the US labour market, which is already reeling with 4.4% unemployment as per the latest data from the US Bureau of Labour Statistics.
According to the CME FedWatch Fed funds future index, a barometer to gauge the market participants’ expectations of US Fed rate changes, there is an almost 90% chance of another rate cut by the FOMC, and the markets are already reacting to the news.
The S&P 500 has ticked down 0.35% yesterday but remains near its all-time high, while India’s flagship Sensex and Nifty indices have crashed over 1,000 and 121 points respectively after the last two trading sessions.
It’s not just the rate cut that could impact the markets; the overall tone of the FOMC meeting outcome could affect the markets.
“The most important aspect of the Fed’s communication on Wednesday is going to be whether Powell characterizes policy as ‘in a good place’, as he did for the first several months of 2025 when the Fed was on hold, or if he repeats his description of policy being ‘modestly restrictive’ or ‘somewhat above neutral.’ In the case of the latter, the door will remain open to further cuts in early 2026,” Jefferies analysts Thomas Simons and Michael Bacolas said in a note to their clients.
Though Powell is known to base his decisions on macroeconomic data, he has to convince other FOMC members to have his way. This could be easier said than done as the members include representatives divided between encouraging more money in the economy to boost employment while the rest are worried about an economy that is on the verge of faltering.
