Today, the Federal Open Market Committee (FOMC) convenes for its final meeting of 2024. Following two consecutive rate cuts of 50 basis points and 25 basis points, the market widely anticipates another 25 basis point reduction, especially in light of Christine Lagarde’s assertion that “the inflation dark days are over.” However, as Bill Dudley pointed out, the Fed cannot overlook the implications of President-elect Donald Trump’s policies. Trump’s proposals, including tax cuts and tariffs, are inherently inflationary.
The critical question now is how the Fed is forecasting future economic conditions and whether a hawkish cut will suffice to stave off a potential resurgence in inflation. Additionally, the Fed has a mandate to oversee financial stability. The current rally of everything —Nasdaq, cryptocurrencies, and the US dollar—raises concerns about potential asset inflation that could spill over into the broader economy.
The bullish case would be to think Powell will play Stanta tonight and everything will keep pumping.