As expected, the FOMC lowered rates today by 25 basis point. The committee members stated that they were committed to reaching “maximum employment” The decision was based on the desire to bring inflation close to its target of 2%. The central bank has cut rates three times in a row, but members of the committee expect their rate cuts to be slower by 2025.
CME Group’s data indicates that odds of another 25bps in January have now reached 82%.
Committee member projections published Wednesday show the median interest rate target by the end of 2025 falling in the 3.75% — 4% range. The projections were 50bps lower.
FOMC’s Forward Guidance (see, we made it up) was largely unchanged from last week’s FOMC meeting but an important phrase was added. “extent and timing.”
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook and the balance of risks,” In the statement of Wednesday, it read:
Markets shouldn’t have been surprised. The decision was made in the end. “Trump trade,” The rally that we have seen since the elections appears to be stalling. The stocks, except for Big Tech, have been mostly sideways throughout the entire month.
The S&P 500 is up just 0.2% since Dec. 2. Nasdaq Composite is up around 3.7%. The index has gained around 3.7%, which is not bad, but it’s still lower than November when it gained nearly 6%.
What is going on? Politics. This is not just because I write this newsletter for Reagan International.
“Since Trump announced several unorthodox cabinet nominations, there has basically been an inverse correlation between cyclical stocks and the likelihood these cabinet nominations get confirmed,” Tom Essaye said that Sevens Report Research founder Tom Essaye. “Prior to Trump’s announcement of Matt Gaetz as AG, Pete Hegseth as Defense, RFK Jr. as HHS Secretary and Tulsi Gabbard as National Intelligence Director, the market was marching steadily higher.”
Some analysts believe that the slowing Trump rally is preparing markets for a Santa Rally. It’s still a couple of days until the actual Christmas. “Santa rally window” It is possible that a major breakout could occur in the equities market and cryptocurrency in the next few days (the final five trading days in the current year, plus the two first days in the new year).
Historically, slumps have always preceded runs. This isn’t trading advice, just a friendly reminder!
The S&P 500 was down 0.6% over today’s session in the moments after the Fed’s decision, the tech-heavy Nasdaq Composite had also lost 0.6% just after 2 pm ET.
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