Baker Market Update
2024-12-20

As the late and great Andy Williams said, “It’s the most wonderful time of the year”! What is better than gathering with people you enjoy, singing songs, looking at big bright lights, all while frantically cheering and yelling? But am I talking about Christmas or the start of the College Football Playoffs? I guess I will just leave that up to everyone to decide for themselves!

This was a week full of economic data, with the main event being the FOMC’s Wednesday meeting where they ultimately cut the Federal Funds Rate by 25-basis points to a range of 4.25%-4.50%. A 25-basis point cut was in line with expectations, however the market reacted to a change from the FOMC in their “Dot Plot”, which is an anonymous snapshot of where the 19 FOMC members project the Federal Funds Rates will be in the future, now only showing 2 rate cuts in 2025 compared to the 4 they were showing at their September meeting. When asked about what would trigger further cuts in 2025, Chairman Powell stated that “As we think about further cuts, we're going to be looking for progress on inflation, we have been moving sideways on 12-month inflation as the 12-month window moves.”

Following the FOMC meeting, the stock market reacted negatively to the new outlook on the future of the Federal Funds Rate. The Dow Jones Industrial Average fell by over 1300 points and the NASDAQ fell by over 700 points on Wednesday. The stock market continues to face difficult news as investors now grapple with a standoff in Congress and a potential government shutdown.

Chairman Powell’s and the FOMC’s worries on inflation may have been somewhat quelled this morning as we received an updated reading on Personal Consumption Expenditures (PCE), the Fed’s preferred measure on inflation. The PCE Price Index rose 0.1% in November and 2.4% from a year ago, against expectations of a 0.2% gain for the month and 2.5% for the year. Core PCE, which excludes food and energy, followed the same trend, coming in at 0.1% for the month (estimated at 0.2%) and 2.8% for the year (estimated at 2.9%). Altogether, this was a very positive inflation report for markets and the Fed with core PCE rising by the smallest amount since May. Bond markets digested the PCE reading relatively well, with bond yields falling this morning. The 2-year UST is down 6-basis points to 4.26% and the 10-year UST is down to 4.5%.

Next week is a relatively mild week for data, as markets are closed for Christmas. Tuesday will bring an update on durable goods orders and new home sales, Wednesday brings good tidings of comfort and joy and Thursday gives us updated numbers on initial and continuing jobless claims. I hope everyone has a wonderful weekend, with safe travels and a lot of football! Merry Christmas!