Last week’s FOMC meeting concluded with a 25 basis point rate cut to 4.25%-4.50%, aligning with expectations. However, the Federal Reserve’s updated projections indicate a more cautious approach for 2025, reducing anticipated rate cuts from 100 basis points to 50 basis points. Cleveland Fed President Hammack dissented, favoring no change, highlighting internal concerns about inflation risks.

In response, U.S. equities experienced volatility. The S&P 500 declined, reflecting investor apprehension about the Fed’s stance. The VIX, a measure of market volatility, surged 74%, marking its second-largest one-day increase in history. Futures markets adjusted expectations, now pricing in only two rate cuts for 2025.

Economic indicators presented a mixed picture. November retail sales exceeded forecasts, suggesting resilient consumer spending. Additionally, Q3 GDP was revised upward, indicating stronger economic growth. However, both headline and core PCE inflation measures came in softer than expected, and personal income and spending figures were below projections, raising questions about the sustainability of consumer-driven growth.

The looming government funding deadline added to market uncertainty. Efforts to pass a resolution faced challenges, with internal political disagreements stalling progress. While analysts typically view shutdowns as having limited economic impact, the current impasse raises concerns about potential disruptions to economic data releases and broader legislative agendas.

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