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During last week’s New York Times DealBook Summit, Federal Reserve (Fed) Chair Jerome Powell said the Fed remains “on a path to bring rates back down to a more neutral level over time.”1 The continued dovish Fed bias coupled with softening labor market data out Friday — most notably an uptick in the unemployment rate — helped to sustain the recent bond rally.2 By week’s end, the probability of a December rate cut increased to 85%,3 while the 10-year Treasury note yield moved down to 4.15%, the lowest level since mid-October.4
Although investors are enjoying the historic stock market run, the steep rise in financial asset prices may increase the risk of inflation reigniting. Coupled with the Trump Administration’s pro-growth and potentially pro-inflation policies, the end of Fed rate cuts may arrive sooner than expected.
This week’s inflation data will provide the final hurdle for Fed policymakers prior to next week’s meeting. The Consumer Price Index (CPI) will be released Wednesday followed by the Producer Price Index (PPI) Thursday.5 Both reports are expected to show more progress is necessary to bring inflation down to the Fed’s 2% target.
Sources:
1The New York Times – Fed Chair Jerome Powell Says Inflation Is a 'Little Higher’ Than Expected; 12/4/24
2,3Reuters – Fed seen poised to cut rates this month, debate 2025 pause; 12/6/24
4Morningstar – Treasury yields end at lowest levels since October as jobs data reinforce December rate-cut expectations; 12/6/24
5MarketWatch – U.S. Economic Calendar; as of 12/9/24
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