Wall Street Brazes for the change of interest rates of the FED and 2025 economic challenges

As 2024 ends, Wall Street is dealing with a challenging mixture of high inflation, evolving federal reserve policies and imminent political changes. While Christmas joy is in the air, investors are cautious after last week’s market struggles, driven by a threat of government closure and Fed’s decision to attach to an interest rate “higher interest rate for longer.”

The Dow Jones industrial average fell 2.3%last week, Nasdaq fell 1.8%and the S&P 500 fell 2%. A weekend rally helped recover some losses, but not enough to compensate for the above decreases.

Fed’s new interest rates plan

The Federal Reserve made its third consecutive interest rate cut last week. However, it surprised the markets by pointing out a slower rate of reductions in 2025. instead of the four expected cuts initially, the Fed now predicts only two.

This policy reflects ongoing concerns about inflation, which remains stubborn in some sectors despite cooling in others. A recent report showed that central inflation, excluding volatile food and energy prices, submerged slightly in November, but remained above the 2% target of the Fed.

Beth Hammack, president of Cleveland’s Fed, dismitted during the last policy meeting, advocating stable maintenance rates until inflation shows lighter decline signs. Fed President Jerome Powell was cautious, emphasizing that controlling inflation remains the main priority.

Potential impact of Trump’s economic policies

Donald Trump’s next mandate as president is adding another layer of uncertainty for investors. Policies such as new tariffs, increased government spending and tax cuts could hinder the Fed work of controlling inflation.

Analysts suggest that the cautious tone of the Fed is partially in advance of these changes. David alley, a macroeconomic strategist of Lazard Asset Management, said that “the hawk in the market is linked to possible inflationary policies of Trump’s plans.”

Chris Rupkey, chief economist of FWDBONDS, warned that the economic measures proposed by Trump could delay the rhythm of interest rate cuts in 2025. “While the Fed has been reducing the rates recently, the eight expected rates reduction meetings can result in many less reductions,” Rupkey said.

Holiday Week: What to see

This week is short for markets, with early closures on Tuesday and a full vacation on Wednesday for Christmas. However, several important economic reports could still influence the feeling of investors:

• Monday: The consumer confidence index is expected to increase slightly to 113, compared to 111.7 in November.

• Tuesday: Reports on construction permits, requests for durable goods and new housing sales will provide information on the real estate market and consumer spending.

• It is projected that the requests for lasting goods decrease by 0.3% after an increase of 0.3% in October.

• The new housing sales are expected to reach 663,000 units, compared to 610,000 in the previous month.

• Thursday: The unemployment claims for the week ending on December 21 will offer an idea of ​​labor market health.

• Friday: Inventory data to wholesale of November will shed light on the dynamics of the supply chain.

Mercado feeling that is directed at 2025

With fewer expected cuts, persistent inflation and political changes in the horizon, markets are adjusting to a new reality. Investors are preparing for greater volatility in early 2025.

“The only certainty is that 2025 will bring even more surprises,” said Chris Zaccarelli, Northlight Asset Management investment director.

Despite the challenges, there are signs of resistance. The United States labor is still strong, consumer spending remains stable and corporate profits have exceeded expectations in several sectors. These factors could help cushion the economy against winds against potential.

Investor control

• The slowest pace of Fed rates cuts aims to curb inflation, but could weigh on market performance.

• Trump’s economic policies can create additional uncertainty for markets in 2025.

• The key data of this week, including reports of the labor and housing market, will provide clues about the management of the economy.

Wall Street is entering 2025 with caution since inflation, interest rates policies and political developments dominate the economic landscape. While the challenges are ahead, opportunities remain for investors that remain informed and adopt a balanced approach.

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