Market Update

In the United States, the Federal Reserve implemented a widely anticipated 25-basis-point rate cut on Wednesday, lowering the federal funds rate to a range of 4.25%–4.5%. This marks a cumulative reduction of 100 basis points (1%) since September. However, the accompanying commentary dampened optimism. Fed Chair Jerome Powell urged caution, citing an upward revision of 2025 inflation forecasts to 2.5%. The central bank also scaled back plans for future rate cuts, with its dot plot indicating just two in 2025, compared to four previously projected in September. Nonetheless, Powell remarked, “Overall, the economy continues to grow at a solid pace […] The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Meanwhile, the prospect of a US government shutdown loomed as lawmakers scrambled to finalize a funding agreement by Friday. Former President Donald Trump added to the tension with a social media post stating, “If there is going to be a shutdown of government, let it begin now, under the Biden Administration.” Despite repeated past threats of shutdowns, neither Biden nor Trump wished to shoulder the blame. Ultimately, both sides found common ground, reaching a last-minute deal to avert the shutdown.
On a brighter note, US equities saw some recovery on Friday. The core PCE inflation report—the Federal Reserve’s preferred inflation gauge—showed a 2.8% year-over-year increase for November, mirroring October’s rate and slightly exceeding expectations. The encouraging data lifted investor sentiment, helping indexes recover some of the week’s losses.
In the United Kingdom, the Bank of England (BoE) left its key interest rate unchanged at 4.75%, a decision that aligned with market expectations. However, three members of the Monetary Policy Committee advocated for a modest rate cut, pointing to subdued demand and signs of a cooling labor market. BoE Governor Andrew Bailey maintained a cautious stance, emphasizing that it remains too early to determine the timing or scale of potential rate reductions in 2025.
In the eurozone, economic activity remained sluggish, with private sector output contracting as the year concluded. While the services sector showed some improvement, weak growth in Germany and France continued to weigh on the region. Political uncertainty added to the mix as German Chancellor Olaf Scholz lost a vote of confidence, triggering early elections scheduled for February. Separately, Trump threatened tariffs on the EU, demanding the bloc address its “tremendous” trade imbalance with the US by increasing oil and gas purchases.
As the year winds down, economic updates typically become less frequent. Our next scheduled market update is on January 6th. However, rest assured that we will continue managing your investments throughout the holiday season and will provide timely updates should any significant market developments arise.