Latest / Markets with Megan: A Quick Financial Markets Update / Fed's Rate Cut Sparks Market Sell-Off and Inflation Concerns | Episode 195 | 12-19-24

Transcript

Fed's Rate Cut Sparks Market Sell-Off and Inflation Concerns | Episode 195 | 12-19-24 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Speaker 1: Well, the markets did not like what the Fed has delivered.
• 0:03
  Speaker 1: Yesterday it is Thursday, December 19.
• 0:05
  Speaker 1: And yesterday we had the December FOMC meeting, which was the last meeting we'll get this year.
• 0:10
  Speaker 1: As expected, the Federal Reserve cut interest rates by 25 basis points, but the market had a massive sell off yesterday across the board the Dow Jones, the S&P and the Nasdaq and this is because they did change their expectations for next year.
• 0:25
  Speaker 1: Let's just dig into some of the details.
• 0:27
  Speaker 1: They put out their summary of economic projections and this is what everybody was really focused on after this meeting.
• 0:34
  Speaker 1: What is the expectation for next year?
• 0:36
  Speaker 1: And while there was, before the meeting, the expectation there would be about four interest rate cuts next year, that's now been reduced to two interest rate cuts over the next year.
• 0:47
  Speaker 1: The Fed made it clear that inflation is a risk right now.
• 0:51
  Speaker 1: And when you look at their details in their economic projections, they actually increased the core PCE inflation reading for next year from 2.2 to 2.5.
• 1:01
  Speaker 1: They're not going to reach that 2% level on core PCE until 2027.
• 1:08
  Speaker 1: Their expectation for the median Fed funds rate for 2025 will be 3.9.
• 1:15
  Speaker 1: That's up from their expectation of 3.4, but they also priced out rate hikes in 2026 and 2027.
• 1:25
  Speaker 1: And their longer run median expectation for the Fed funds rate is now 3% as opposed to 2.9.
• 1:32
  Speaker 1: The markets did not like this.
• 1:34
  Speaker 1: As I mentioned, bond yields were higher on the long end of the curve.
• 1:37
  Speaker 1: The curve is now steepened where the 10-year is above the Fed funds rate, but the equity markets were not anticipating that they would deliver this hawkish of a rate cut, meaning that they were much more concerned about the outlook for inflation.
• 1:52
  Speaker 1: They continue to say that their risks to achieving employment and inflation are now basically in balance, meaning that their adjustments to monetary policy are good.
• 2:02
  Speaker 1: For now.
• 2:03
  Speaker 1: We think what's going to happen is that they will come in next year.
• 2:06
  Speaker 1: They won't make any changes in the first quarter.
• 2:08
  Speaker 1: We think they're going to continue to assess what's going on from the inflation standpoint and make sure that the labor market is not deteriorating.
• 2:15
  Speaker 1: But we think this really takes them off the table for the first quarter of next year at a minimum.
• 2:21
  Speaker 1: That's all that we have on the Fed.
• 2:23
  Speaker 1: We'll continue to monitor the Federal Reserve as we get into the new year, see if there's any speeches that change this tone that came out of Federal Reserve Chairman Jerome Powell yesterday.
• 2:33
  Speaker 1: But at this time the markets are basically pricing out a first quarter rate cut.
• 2:40
  Speaker 1: If you like this podcast, please subscribe, hit the alarm bell and, as always, if you'd like any of our further historical podcasts, you can go to marketswithmeganfm.
• 2:50
  Speaker 1: Thank you.