Inflation Data and Fed Minutes to Shape Interest Rate Outlook Ahead of Thanksgiving
The upcoming week holds significant implications for the **interest rate outlook**, as key economic data and Federal Reserve meeting minutes are set to be released just before Thanksgiving. Investors are closely watching, particularly following the strong market performance in the wake of President-elect Donald Trump’s victory. The October **Personal Consumption Expenditure (PCE) price index**, a closely watched inflation indicator, is expected to reveal whether inflation remains sticky, potentially influencing the chances of a December rate cut. This follows recent consumer and producer price data which have fueled concerns about reaching the Fed’s 2% inflation target. The release of the **Federal Open Market Committee (FOMC) minutes** will additionally provide valuable insight into the Fed’s thinking regarding future interest rate adjustments, adding another layer of uncertainty to the already complex market landscape. The holiday-shortened trading week adds another variable, potentially leading to increased volatility due to reduced trading volume.
Key Takeaways: A Week of Crucial Economic Indicators
- Inflationary Pressures: The upcoming release of the October PCE price index is crucial. Economists anticipate sticky inflation, potentially dimming hopes for a December rate cut and raising concerns about the Fed’s inflation target.
- Fed’s Stance on Rates: The FOMC minutes from the November meeting will be closely examined for clues to the Fed’s future interest rate policy. The market’s expectations for rate cuts are changing based on recent economic data.
- Market Volatility: A holiday-shortened trading week with reduced volume could lead to increased market volatility.
- Investor Sentiment: Despite some headwinds, investors remain largely optimistic about stock market performance through the end of the year and into 2025, citing a strong economy, earnings growth, and the AI sector’s strength.
- 2025 Stock Market Predictions: Several major firms have put forward bullish S&P 500 targets for 2025, largely projecting gains above 10%.
Inflationary Concerns and the PCE Index
The key data point impacting interest rate expectations is the October **PCE price index**, due for release on Wednesday. Economists predict a month-over-month increase of 0.2% and a year-over-year increase of 2.3%. This represents a slight upward tick from September’s figures. **Core inflation**, which excludes volatile food and energy prices, is similarly projected to rise, adding to concerns about persistent inflationary pressures. Luke O’Neill, portfolio manager of the Catalyst Dynamic Alpha Fund, highlights the significance of this data: “This might be one of the last big key pieces of data that they that they look at before kind of finalizing their opinions on this, and so that’s going to be a big deal. If it comes in a little bit hotter than expected, I would certainly anticipate that tilts toward less chance of a cut in December.”
Impact on Rate Cut Expectations
A stronger-than-expected PCE report could significantly reduce the probability of a December rate cut. Currently, markets assign roughly a 60% chance to a quarter-point reduction, down from 70% just a month ago, according to the CME FedWatch tool. The market’s reassessment underscores the growing awareness of persistent inflation, challenging the earlier assumptions of a more aggressive easing of monetary policy.
Federal Reserve’s November Meeting Minutes: A Closer Look
Beyond inflation data, investors will intensely scrutinize the **FOMC minutes** from the November meeting, scheduled for release on Tuesday. These minutes offer crucial insights into the Fed’s internal deliberations and reasoning behind its monetary policy decisions. As O’Neill points out, “The exact nature of when the Fed cuts and when they pass for a meeting and whatnot, is a little bit less important than a commitment to the path, which is why the minutes are going to be helpful to see next week.“
Shifting Expectations for Rate Cuts
The recent economic data has prompted investors to recalibrate their expectations for the terminal federal funds rate (the peak interest rate). O’Neill suggests a “higher-for-longer rate environment” is emerging, with a terminal rate of around 3.75%, differing from previously held expectations of rates reaching as low as 3%. This shift highlights the increased uncertainty among investors surrounding the Fed’s future actions.
Market Outlook: Optimism Persists Despite Rate Uncertainty
Despite the potential headwinds from higher-than-expected inflation and adjustments to rate cut expectations, many investors remain optimistic about the stock market’s trajectory through year-end and into 2025. This positive outlook is rooted in several factors: a robust underlying economy, significant earnings growth potential, and the sustained strength of the AI sector.
2025 S&P 500 Targets: A Bullish Consensus
Several prominent strategists have unveiled ambitious S&P 500 targets for 2025. Goldman Sachs’ David Kostin and Morgan Stanley’s Mike Wilson both predict a year-end target of 6,500. These are optimistic projections, considering the index’s current performance. BMO Capital’s Brian Belski and UBS have posted even higher estimates – 6,700 and 6,400, respectively. Such projections build on the S&P 500’s impressive 24% surge in 2023 and its continued growth during the current year. Tom Hainlin of U.S. Bank Asset Management Group expresses confidence in a positive market trend: “As we look at all the sequencing of events between election, Fed, inflation, interest rates, consumer spending, so far it lines up relatively supportive of equity prices moving higher into year end, and into 2025.“
Other Economic Indicators and Upcoming Events
Beyond inflation and interest rate concerns, the coming week presents a range of other economic indicators, including housing data and earnings reports from several AI-related companies. Housing data will indicate the persistence (or lack thereof) of upward pressure on prices, a key concern for the Fed. The reports will follow Nvidia’s impressive performance, adding another layer to the picture regarding the performance of the AI sector.
Impact of Holiday-Shortened Trading
It’s critical to note that trading volumes will likely be suppressed due to the Thanksgiving holiday, which could amplify price movements. The reduced liquidity can lead to more pronounced volatility in response to significant economic news events as traders are less able to absorb large sell-offs.
Week Ahead Calendar
This calendar outlines a series of high-impact economic reports set to influence current and future market activity. Each entry contains specific timings to support investors in effective planning and scheduling:
- Monday, November 25th: Chicago Fed National Activity Index (October), Earnings: Agilent Technologies
- Tuesday, November 26th: Building Permits final (October), FHFA Home Price Index (September), S&P/Case-Shiller comp.20 HPI (September), Consumer Confidence (November), New Home Sales (October), Richmond Fed Index (November), FOMC Minutes, Earnings: HP, Dell Technologies, CrowdStrike, NetApp, J.M. Smucker, Analog Devices, Best Buy, Autodesk
- Wednesday, November 27th: Durable Orders (October), GDP second preliminary (Q3), Initial Claims (11/23), Personal Income (October), Wholesale Inventories preliminary (October), PCE Deflator (October), Personal Consumption Expenditure (October), Pending Home Sales Index (October), Pending Home Sales (October)
- Thursday, November 28th: Continuing Jobless Claims (11/16), NYSE closed for Thanksgiving Day
- Friday, November 29th: Chicago PMI (November), NYSE closes at 1 p.m. ET
The upcoming week will be crucial in shaping the trajectory of interest rates and broader market sentiment. Investors should closely monitor the release of key data points and pay close attention to the potential for increased volatility due to the holiday-shortened trading week.
