Last week was the final FOMC meeting of 2024, and volatility relating to expectations and actuals continued to be highest in recent years. The year started off with expectations of a cut, then reversed to no cut and ended up with three cuts. This might put the spotlight on next year as the President-elect takes office.
During the first press conference after the US elections, Chair Powell mentioned that he would not be leaving the position even if asked by the new president. However, the recent President-elect said that he doesn’t have intentions to remove the Fed Chair. Last week's FOMC policy outlook resulted in some reports mentioning that he would have a closer look at it.
The surprises that might have forced this change for him to have a closer look impacted the views of investors as well. The S&P fell by 3% within one day.
The first surprise was that FOMC only expects two rate cuts next year with a risk of revision. This was on the background of 100 bps already cut and the rate coming closer to the neutral rate.
The second and most important surprise was that Chair Powell mentioned that the policy process was in a new phase and that the projected economy for the next three years would be highly uncertain.
These were some other mentions of a downturn risk and unlikely rate hike. These differences between policy and investors' expectations can be the cause of higher volatility next year in terms of rates and financial markets. This can further impact global financial and economic stability.
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