This week marks another important moment for financial markets as the Federal Reserve heads into its December policy meeting. The Fed is widely expected to cut interest rates by 25 basis points, bringing total reductions to 175 basis points since rate cuts began in September of last year. While the move is already priced in, this meeting still carries weight for several reasons.
A Pivotal Meeting for Policy Direction
This is one of the Fed’s quarterly meetings, meaning investors will receive an updated Summary of Economic Projections, including new forecasts for GDP growth, inflation, unemployment, and future interest rates. These projections shape market expectations for the year ahead and offer valuable insight into how much further the Fed believes it can ease policy.
Leadership Transition on the Horizon
Fed Chair Jerome Powell’s term expires in May, leaving only a handful of meetings before leadership potentially changes. Early indicators suggest Kevin Hassett, currently part of the administration’s economic team, is the frontrunner—though nothing is final. Regardless of who takes the helm, the next Chair will assume the role at a delicate moment for the U.S. economy.
Economic Backdrop: Mixed Signals
Recent data—delayed due to the government shutdown—shows a labor market that is beginning to lose steam. The unemployment rate has risen for three consecutive months, and updated November numbers are expected next week.
Inflation remains a challenge. While headline inflation has cooled significantly from the 9% highs seen a few years ago, year-over-year inflation is still hovering around 3%, above the Fed’s 2% target. Progress has stalled in recent months, making it harder for the Fed to justify aggressive rate cuts.
Meanwhile, consumers continue to feel the cumulative effects of price increases. Overall price levels are up roughly 25% over the past five years—a rise matched only by the early 1970s. In a recent Politico poll, 46% of Americans said inflation is the worst they've experienced in their lifetime, a sentiment shared across political lines.
A “K-Shaped” Economy Persists
Despite the stock market reaching new highs, consumer sentiment remains weak—near levels last seen early in the pandemic. This divergence reflects the “K-shaped economy”:
• Some households benefit from rising markets and low mortgage rates locked in years ago.
• Others face high housing costs, limited market participation, and ongoing affordability pressures.
This divide continues to shape how Americans perceive the health of the economy, regardless of positive market performance.
Looking Ahead
All eyes will be on Wednesday’s press conference for clues about the Fed’s path forward. With inflation still sticky and the labor market softening, the central bank will need to balance supporting growth with keeping price stability on track.
We’ll provide a full breakdown following the announcement next week. As always, if you have questions about how this impacts your financial plan, please contact your EP Wealth advisor.