- Fed’s Christopher Waller said that he supports another rate cut in December.
- Market participants moved to price a higher 72% chance of a Fed rate cut.
- Business activity in the US manufacturing sector grew more than expected.
Equities ended at record closes on Monday due to increased bets for a December Fed rate cut. Meanwhile, there was anticipation ahead of crucial US data and Fed policymaker remarks. Notably, stocks ended November in the green due to the Trump trade. Some of this optimism might spill into December.
S&P 500 index (Source: Bloomberg)
Fed rate cut expectations rose on Monday after policymaker Christopher Waller said that he supports another rate cut in December. Consequently, market participants moved to price a higher 72% chance of a rate cut. Investors are now eagerly awaiting a speech from Fed Chair Jerome Powell for more clues on the future of monetary policy in the US.
Although economic data has shown a resilient economy, inflation has mostly come in line with expectations. As a result, policymakers will likely lower borrowing costs in December. However, after the December meeting, the outlook has shifted significantly. Markets are not expecting a rate cut in January or March. This shift came after Trump won the presidential election in November and brightened the outlook for the economy.
Equities have a bright future under Trump’s administration. However, if the Fed has to keep rates at restrictive levels for longer, the effects will weigh on the economy and stocks.
Meanwhile, data on Monday revealed that business activity in the US manufacturing sector grew more than expected. The PMI increased from 46.5 to 48.4. However, the sector remained in contraction below 50.
Markets are expecting more data on the US labor sector that will shape the outlook for Fed rate cuts. According to estimates, the US economy likely added 195,000 jobs in November, well above the previous month’s 12,000. Meanwhile, the unemployment rate might come in at 4.2%, above the last 4.1%.
If figures come in line with estimates or show unexpected deterioration, rate-cut bets will surge, and equities might rally. On the other hand, a jump in employment will increase caution in the markets as policymakers might vote to pause in December.
In the last month of the year, investors will watch developments in US politics as Trump prepares to take office in January. Already, he has vowed to impose tariffs on several countries. The president-elect’s moves will continue shaping the outlook for the US economy and monetary policy.
