We get the first big risk event of the final month of the year with the Fed meeting on Wednesday. In fact, there’s a bunch of central bank meeting with the RBA and Bank of Canada also deciding on interest rates. But those two will sit on their hands, unlike the FOMC which is now fully expected to cut rates by a quarter point to 3.5% to 3.75%. The past few weeks have seen money markets yo-yo, with much less chance of a rate reduction when data releases were sparse during the US government shutdown.
More recently since the reopening, what relatively stale economic figures we have seen pointed to a weaker labour market, which is likely to hold more sway over the centrists at the Fed. The final meeting of 2025 also brings with it updated summary of economic projections and a fresh new dot plot. The latter is a quarterly chart that shows the policymakers’ individual projections for the federal funds rate over the next few years. This range of opinions will be interesting in what has been a heavily divided Committee in recent months. Markets currently predict an additional 13bp of cuts by the time of the March meeting and 32bp more cuts by the June FOMC meeting.
Consensus seems to expect one more rate cut signalled in the new year as policy will then be more neutral and inflation still modestly above target.  The lack of timely (inflation) data likely means the hawks especially won’t be too relaxed just yet, even with soft wage growth and lower energy prices. Language by Fed Chair Powell will be a focus, as it always is.  However, we must remember that the voting committee could look very different in the coming months with President Trump keen to shake up the membership, in addition to replacing Jerome Powell as Fed Chair from May. Kevin Hassett, the heavily favoured replacement, is seen as a dove though whether he will be as dovish as some think may be limited by the voting process at the FOMC.