Highly Anticipated Fed's Rate Cut May Boomerang In 2025

Barry Adams
18 Dec, 2024
New York City

Wall Street retained a positive bias in early trading ahead of the Fed's rate decisions later today. 

The S&P 500 index advanced 0.3%, the Nasdaq Composite gained 0.2%, and investors are anticipating that the Federal Reserve will cut the fed funds rates by 25 basis points. 

The Fed's Summary of Projections will be in focus as investors are looking forward to policymakers' estimates on economic growth, inflation, and the labor market. 

The Federal Reserve's decision is scheduled to be announced at 2:00 p.m. ET. 

The central bank is widely expected to temper expectations of future rate cuts amid resurgent inflation and policy uncertainty surrounding the incoming presidential administration. 

Investors are worried that the sharp escalation in trade tariffs proposed by the President-elect Donald Trump could stoke inflationary pressures, forcing the Fed to keep higher interest rates for longer. 

Despite eleven rate hikes over 2022 and 2023, inflation has stayed well above the Fed's target rate of 2%, and a rate cut by the Fed is likely to fuel inflationary forces in the months ahead. 

Moreover, policymakers appear to have run out of tools to lower inflation further, as most of the decline in inflation over the last eighteen months has been driven by a sharp fall in energy prices. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.3% to 6,050.61, the Nasdaq Composite rose 0.1% to 20,052.07, and the Russell 2000 index declined by 0.2% to 2,316.59. 

The yield on 2-year Treasury notes edged lower to 4.26%, 10-year Treasury notes inched down to 4.42%, and 30-year Treasury bonds increased to 4.61%.

WTI crude oil increased $0.64 to $70.71 a barrel, and natural gas prices edged up 5 cents to $3.35 a thermal unit.

Gold decreased by $2.85 to $2,644.48 an ounce, and silver fell by $0.11 to $30.39. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher by 0.01 to 106.96.

 

U.S. Stock Movers 

General Mills declined 5.7% to $62.0 despite the food product maker reporting better-than-expected sales in its quarter. 

Merck & Co. increased 1.1% to $101.21, and the pharmaceutical company signed an exclusive global license agreement with the China-based Hansho Pharmaceuticals.

Merck plans to develop and commercialize a Chinese company's experimental obesity drug with an upfront payment of $112 million and additional milestone payments of up to $1.9 billion.

Birkenstock Holding PLC soared 5.6% to $58.89 after the designer sandals maker reported better-than-expected fiscal fourth quarter results, driven by higher full-price sales in the U.S. and Asia. 

Revenue in the fiscal fourth quarter ending in September increased 21% to €1.8 billion from €1.49 billion, net income soared 155% to €191.6 million from €75 million, and diluted earnings per share advanced 161% to €1.02 from 41 cents a year ago. 

The company registered a double-digit increase in sales across all regions, with sales in the Americas advancing 19%, in Europe gaining 21%, and Asia Pacific, the Middle East, and Africa soaring 42%. 

Jabil Inc. surged 9.7% to $146.90 after the electronics manufacturing company reported better-than-expected fiscal first quarter earnings and the company lifted its full-year outlook.