Market attention is firmly fixed on the U.S. Federal Reserve, with expectations overwhelmingly pointing to a possible interest rate cut next week. At the same time, investors are grappling with unclear economic signals that policymakers rely on when setting rates.
One major challenge facing the Fed is the lack of timely labour market data. The most critical indicator—monthly U.S. payrolls—won’t be released until mid-December. Even more unusual, the previous report was never published due to the prolonged government shutdown.
Still, policymakers are set to receive fresh inflation-related data today with the delayed release of September’s Personal Consumption Expenditures (PCE) price index, one of the Fed’s preferred inflation measures.
According to CME Group’s FedWatch tool, the probability of a 25-basis-point rate cut at Wednesday’s policy meeting has risen to 87%. Expectations strengthened after private-sector data from ADP unexpectedly showed a decline in U.S. jobs for November. While weekly jobless claims dropped to their lowest level in three years, economists caution that the Thanksgiving holiday likely distorted the figures.
These developments have weighed on the U.S. dollar, pushing it close to a five-week low, while global equity markets have found support.
Looking beyond an almost-assured December rate cut, investors are eager for guidance on how policy may evolve in 2025. Much of that clarity is expected from Fed Chair Jerome Powell’s press conference following the meeting. However, longer-term rate expectations were also stirred earlier this week when President Donald Trump floated White House economic adviser Kevin Hassett as a potential future Fed Chair once Powell’s term ends in May.
A Financial Times report indicated that bond investors have raised concerns with the U.S. Treasury over Hassett’s potential appointment, fearing it could lead to aggressive rate cuts in line with Trump’s push for looser monetary policy.
Although Fed officials are currently restricted from public commentary due to the pre-meeting blackout period, markets remain alert for any policy-related signals from President Trump’s social media activity.
In Europe, attention today turns to commentary from European Central Bank Chief Economist Philip Lane, who is chairing a session at a conference focused on fiscal policy. Meanwhile, the standout regional data release will be UK house price figures for November.
