Pay attention to the signals that the Federal Reserve Board Chair will give ahead of Fed Chair Powell's interest rate decision

The Federal Reserve’s interest rate decision led by Chairman Jerome Powell is just a few days away. Recently released US economic indicators such as the ADP Non-Farm Employment Change and Personal Consumption Expenditures (PCE) broadly support the possibility of rate cuts, and as a result, Wall Street’s anxiety is quickly dissipating. Investors are once again betting on risk assets, especially paying close attention to the potential impacts of rate cuts.

Signals from Economic Indicators

The sluggishness of the US labor market is a major factor prompting the Federal Reserve to accelerate its policy decisions. Over the past few months, the slowdown in non-farm job growth has become more apparent, indicating a weakening labor market, which has influenced policymakers, including the Fed Chair, to consider rate cuts. The PCE, a key indicator of inflation trends, currently aligns with the Fed’s inflation target, suggesting a move toward price stability.

Key Schedule for the Federal Reserve Chairman

This week’s Fed policy announcement schedule is highly significant for investors. On Tuesday, the US November New York Fed’s 1-year inflation expectation will be released, along with the US October JOLTs job openings report. Wednesday features the Federal Open Market Committee (FOMC) meeting, where interest rate decisions and economic outlook summaries will be announced, followed immediately by Chairman Powell’s press conference on monetary policy.

On Thursday, new unemployment insurance claims and trade balance data will be released. On Friday, data related to US household financial health will be published, along with speeches on economic outlook by the President of the Philadelphia Fed and the President of the Cleveland Fed. Chicago Fed President Goolsbee will participate in a panel discussion at the 39th Annual Economic Outlook Symposium.

The Fed’s Outlook in the Dot Plot

The dot plot released by the Federal Reserve in September last year implied two rate cuts by 2026. However, the current market expects an additional 63 basis points (about 0.63%) of rate cuts in 2026, indicating the possibility of more than three rate cuts annually. This divergence between the Fed and market expectations reflects changes in the economic situation and the potential for policy flexibility.

The Significance of Rate Cuts

Rate cuts are more than just numerical changes; they are crucial signals that determine the direction of macroeconomic policy led by the Fed Chair. Lower interest rates reduce borrowing costs for companies and make consumer loans easier, potentially stimulating overall economic activity. However, the risk of inflation re-emerging must also be considered. Chairman Powell and the Federal Reserve are expected to carefully balance these factors while implementing policy.