CME shows 67% chance of Fed rate cut in December

The US traditional financial market continues to surge, with the S&P 500 ($SPX) reaching new all-time highs last week. November’s rally was one of the strongest on record as to generated a 3.42% gain. However, the upcoming economic data remains crucial for the market.

This week will see key releases include manufacturing data, consumer spending, and the all-important jobs report on Friday. As of now, CME shows that the probability of a 25bps rate cut on December 18 is 67%, while the rate unchanged gets 32.9%.

Job openings, ADP, and non-farm payrolls set to move markets

US agencies will be releasing the unemployment rate and ADP employment figures for November along with the new non-farm payrolls the same month. Later, the Fed is expected to release the Beige Book on economic conditions, and Jerome Powell will be interviewed.

The upcoming date stands pivotal for the labor market. It will see ISM Manufacturing PMI on Monday. Manufacturing has been in contraction for months. A surprise expansion could boost cyclical stocks, while further contraction could raise growth concerns. 

JOLTS Job Openings will be out on Tuesday and a decline in openings could spark rate cut speculation, which might support market momentum. Stronger-than-expected numbers might dampen such expectations.

Next in line is ADP Employment Change, expected to be released on Wednesday. It will be out just before Friday’s jobs report and a high miss could boost markets on hopes of Fed easing. Meanwhile, a strong report might lead to short-term volatility.

Decisive of them all, the Initial Jobless claims will hit the market on Thursday. The market will be watching for the signs of labor market softening. An uptick in claims could support cooling economy narratives, while lower-than-expected claims could challenge recent optimism. 

The key event of the week, Non-Farm Payrolls, is set to be delivered on Friday. After October’s weak numbers, markets will focus on whether the trend continues. Wage growth and the unemployment rate will also be crucial.

Fed’s Dec meeting looms

The Federal Reserve is expected to cut interest rates for the third time this year at its December meeting. However, the bigger question here remains what’s next for 2025. While a 0.25% rate cut is likely in December, doubts are growing about how quickly the Fed will lower rates next year. Recent economic data has shown solid growth and sticky inflation.

In September, the Fed’s projections indicated four rate cuts for 2025, but markets now forecast only two. The next update comes on December 18, and it could reveal a shift in the outlook. Wall Street economists generally agree that the rapid pace of cuts won’t continue. 

With the Fed funds rate currently at 4.5%-4.75%, most of the experts agree that it’s restrictive. The debate now centers on how much further easing is necessary while inflation remains sticky.

On the other hand, the digital assets market is watching a not ending bull run as Bitcoin is trying to get over the much anticipated $100k milestone. BTC’s 128% year to date (YTD) surge says it all. The cumulative crypto market cap is now rapidly approaching the $3.5 trillion mark.

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