Fresh economic readings push institutions to reconsider earlier calls
Major US financial institutions have revised their forecasts for Federal Reserve policy action as recent economic data and central bank signals point toward an interest rate reduction in December.
J.P. Morgan announced Wednesday that it now expects the Federal Reserve to deliver a 25-basis-point rate cut in December, reversing its earlier projection that policymakers would remain on hold until January. The shift followed comments from key officials, including New York Fed president and FOMC vice chair John Williams, that suggested an earlier move.
“While the next FOMC meeting remains a close call, we now believe the latest round of Fedspeak tilts the odds toward the Committee deciding to cut rates in two weeks from today,” J.P. Morgan chief US economist Michael Feroli wrote in a note.
Goldman Sachs issued a similar assessment Wednesday, noting that with no major data releases scheduled before the Dec. 9-10 Federal Open Market Committee meeting.
Financial markets reflected growing confidence in rate-reduction prospects. Traders priced in an 84.9% probability that the central bank will implement a quarter-point reduction to its key federal funds target rate at the conclusion of its December policy meeting, according to CME’s FedWatch tool.
Wall Street extended its rally Wednesday as the three major US stock indexes notched their fourth consecutive daily gains. The Dow Jones Industrial Average rose 314.67 points, or 0.67%, to 47,427.12. The S&P 500 gained 46.73 points, or 0.69%, to 6,812.61, while the Nasdaq Composite added 189.10 points, or 0.82%, to 23,214.69.
Economic data released this week showed consensus-topping core capital goods orders in September, suggesting corporate expenditures remain more robust than economists predicted. The Commerce Department report had been delayed due to a government shutdown.
However, mixed signals emerged from labor market indicators. While initial claims for unemployment insurance landed below consensus, continuing claims remained on an upward trend, supporting recent survey data showing consumers’ assessment of the job market is deteriorating.
The Federal Reserve’s Beige Book, which summarizes economic conditions by district, appeared to have little effect on rate-cut expectations when released this week, Reuters reported.
A Reuters poll showed analysts expect the S&P 500 to rise 12% between now and year-end 2026, powered by a robust economy, continued strength in the technology sector and an accommodative Federal Reserve.
