Good morning investors. This afternoon the Fed will confirm a move that markets have forecasted for months.

Below we’re breaking down what to know.

The Federal Reserve has been communicating its ambition to stamp out inflation for over two years.

And yet it’s about to cut interest rates as prices continue to move in the wrong direction. 

Currently, the central bank’s benchmark rate still hovers near its highest in two decades in the 4.5% to 4.75% range.

Wall Street, for its part, sees nearly 100% odds for a 25 basis point cut for the December meeting, which would bring the federal funds rate to the 4.25% to 4.5% range.

Those overwhelming odds effectively corner the Fed into doing what markets want, given that policymakers work hard to avoid surprising markets. 

“Lately, instead of the Fed leading the markets, we have seen vice-versa where the markets lead the Fed,” said Gene Goldman, chief investment officer at Cetera Investment Management. 

To Goldman’s point, it’s not clear that recent economic data justify the move — particularly for a monetary policy regime that’s claimed to be so fixated on numbers. 

November CPI accelerated to its hottest rate in five months at 2.7% year-over-year, as the chart from Public.com shows. 

At the same time, economic growth remains robust. Fourth-quarter GDP is on track to come in at 3.1%, according to the Atlanta Fed’s GDPNow model. 

In any case, the tone of Jerome Powell’s press conference will determine how markets react to the news.

The dot plot — the policy projection for the year ahead — will further reveal how aggressive central bankers are leaning, and it will likely raise more questions around where the so-called “neutral rate” will end up. 

“We foresee a hawkish shift in the dot plot, consistent with the movement in market expectations since the last update in September,” said Macquarie economist David Doyle. 

His team predicts only one rate cut in 2025, either in March or April. 

The key question, in Cetera’s investment chief’s view, is how the Fed will cut rates while also raising dot plot expectations for inflation, economic growth, and interest rates. 

“Take all of this together and you have the real threat of a market melt-up, when market exuberance grows and heads us into the direction of Greenspan’s irrational exuberance, where asset prices increase beyond what is justified by fundamentals,” Goldman said.

Today’s letter is brought to you by Public!

While the policy outlook for next 12 months remains uncertain, odds are interest rates will ultimately end the year lower — meaning bond yields are set to become less attractive in the near future. 

With that in mind, Opening Bell Daily has partnered with Public.com to offer investors a 6.85% yield on the platform’s latest bond product offering. 

Lock in a market-leading 6.85% bond yield with Public.com.* 

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Elsewhere:

📉The Dow hit a 9-day losing streak. That’s the longest drag since 1978. The weakness began the day after it closed above 45,000 for the first time ever earlier in December. Driving the index’s losses has been a broad rotation into tech stocks and out of the old-economy names that climbed in November. (CNBC)

📊 Nvidia kept falling on Tuesday. The stock dropped another 1.22% after a similar size decline to open the week. Other chipmakers like Advanced Micro Devices and Broadcom also fell, though none of those are in correction territory like Nvidia. (Barron’s)

👀 Biden wants to stop Congressional stock trading. The president endorsed a ban on lawmakers trading equities, which has been a long-scrutinized practice that’s never been voted on. It remains standard practice for members of Congress, with Nancy Pelosi famously beating the market for many years. Biden said he thinks “we should be changing the law.” (Forbes)

Rapid-fire:

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*This yield is the average, annualized yield to worst (YTW) across all ten bonds in the Bond Account, before fees, as of [12/17/24]. Because the YTW of each bond is a function of that bond’s market price, which can fluctuate, your yield at time of purchase may be different from the yield shown here and your YTW is not “locked in” until the time of purchase. A bond’s YTW is not guaranteed; you can earn less than that YTW if you do not hold the bonds to maturity or the issuer defaults. All investing involves risk. Brokerage services for US listed securities, options and bonds in a self-directed brokerage account are offered by Public Investing, member FINRA & SIPC.