Fed Expected to Cut Rates for Third Consecutive Time at Final FOMC Meeting of the Year
Divergence Anticipated Within FOMC; Focus on Powell's Press Conference and Dot Plot
Hawkish Rate Cut Possible... Rate Hold Likely for the Time Being
On December 10 (local time), the three major indices of the New York Stock Exchange showed mixed movements, hovering near the flatline. As investors adopted a wait-and-see approach ahead of the last Federal Open Market Committee (FOMC) meeting of the year by the Federal Reserve, experts increasingly expect the Fed to pursue a "hawkish rate cut" (a rate cut with a preference for monetary tightening).
On the 10th (local time), traders are working on the trading floor of the New York Stock Exchange (NYSE) in the United States. Photo by AFP Yonhap News
As of 10:14 a.m. on the same day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average was up 127.52 points (0.27%) from the previous trading day, standing at 47,687.81. The large-cap S&P 500 Index was up 1.04 points (0.02%) at 6,841.55, while the tech-heavy Nasdaq Index was down 52.31 points (0.22%) at 23,524.176.
By stock, U.S. manufacturer GE Vernova rose 12.27% after announcing an expansion of its share buyback program and dividend. Amazon gained 1.65% after announcing a $35 billion investment in India over the next five years. Nvidia was down 0.41%.
Market attention is focused on the results of the FOMC meeting, which will be announced at 2:00 p.m. on this day. Most expect the Fed to cut its benchmark interest rate, currently at 3.75-4.0% per year, by 0.25 percentage points for the third consecutive time following September and October. However, with internal opinions divided between "additional cuts" and "holding steady" amid a combination of slowing employment and persistent inflation, the key issue is what message this meeting will convey regarding the future path of interest rates. In particular, there are expectations that Federal Reserve Chair Jerome Powell may introduce the perspectives of committee members who opposed rate cuts and suggest a moderation in the pace of future cuts during his press conference at 2:30 p.m. This has strengthened forecasts that a hawkish rate cut will materialize.
The dot plot, which will indicate future rate projections, is also drawing attention. According to the September dot plot, the median policy rate forecasted by FOMC members was 3.4% for 2026 and 3.1% for 2027. If the Fed cuts rates this week and maintains this outlook, it would mean just one rate cut each in the next two years. The new dot plot is expected to reveal the FOMC members' views on the appropriate level of rates going forward.
The U.S. economy is currently facing the uncomfortable situation of both signs of slowing employment and persistent inflation. According to the Labor Department's Job Openings and Labor Turnover Survey (JOLTs) released the previous day, job openings in October increased by 12,000, but actual hires fell by 218,000, and layoffs rose by 73,000. Meanwhile, the Personal Consumption Expenditures (PCE) price index for September rose 2.8% year-on-year, still well above the Fed's target of 2%. The Fed is caught in a dilemma: rate cuts are needed to support the labor market, but rate hikes are required to tame inflation.
Bill English, a Yale University professor and former director of monetary policy at the Fed, said, "A hawkish rate cut is the most likely scenario," adding, "The FOMC statement and press conference may signal that rate cuts are over for the time being." He also noted, "The Fed has already adjusted its policy and is relatively comfortable with the current situation. If things unfold as expected, there will likely be no need for additional action in the short term."
U.S. Treasury yields were slightly lower. The 10-year Treasury yield, the global benchmark for bond rates, stood at 4.17%, and the 2-year Treasury yield, which is sensitive to monetary policy, was at 3.60%, both down 1 basis point (1bp = 0.01 percentage point) from the previous trading day.
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