Investing.com – The end of the year is looming, but before then, the Federal Reserve will issue its final policy decision for 2024, along with the Bank of Japan and the Bank of England. Here's your look at what's happening in the markets for next week.
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Fed decision
The bank is widely expected to deliver another 25 basis point interest rate cut after its final meeting of the year on Wednesday, in what would be the third straight cut.
With the cut already fully priced in, investors are focusing on any guidance on how much further interest rates could be cut in 2025.
The Fed's updated summary of economic forecasts released at the meeting will provide one indication of where policymakers see interest rates heading. In a sign of potential support for a slower pace of interest rate cuts next year, Federal Reserve Chairman Jerome Powell said this month that the economy is stronger now than the central bank expected in September.
“In our view, the risks associated with the meeting are biased towards caution compared to market expectations,” Citi analysts said in a note on Friday.
“Chairman Powell is likely to reiterate that interest rate cuts could slow if inflation rises, but they could also accelerate if the unemployment rate continues to rise, and a soft jobs report combined with slowing inflation may once again push officials to pay more attention to… Attention to the economy.
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Bank of Japan meeting
The Bank of Japan is scheduled to hold its final meeting of 2024 on Thursday, and while market expectations have swung widely in the past two weeks as the decision approaches, there is consensus that officials will remain stable.
Reuters reported on Thursday that policymakers were leaning towards pausing, waiting for more data on wages and clarity on Donald Trump's policies before raising interest rates for a third time.
A day earlier, Bloomberg reported that Bank of Japan officials see “little cost” from delaying additional tightening.
But market volatility may be high ahead of the meeting with the outcome still uncertain. One potential risk is that the Federal Reserve stops cutting interest rates on Wednesday, leading to a jump in the dollar-yen exchange rate.
But analysts noted that it would be very rare for the Fed to go against the grain when market expectations for a rate cut are so strong.
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The Bank of England is expected to hold firm
The Fed is widely expected to hold interest rates steady at 4.75% on Thursday, and is expected to hold off on delivering a third rate cut of 25 basis points until February. Markets are currently pricing in three quarter-point interest rate cuts by the end of next year.
Data on Friday showed that the British economy contracted for the second month in a row in October, adding to concerns about the outlook after recent business surveys pointed to weakness and flat retail sales.
The Bank of England is unlikely to be concerned enough about GDP to cut interest rates this week.
Last month, the central bank cut its annual growth forecast for 2024 to 1% from 1.25%, but forecast 2025 to be stronger with 1.5% growth, reflecting a short-term boost to the economy from Chancellor Rachel Reeves' Budget.
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PMI data
This week's global PMI numbers will give investors new insight into the health of the global economy after data in November suggested the slowdown in the manufacturing sector was spilling over into services sector activity.
The euro zone composite PMI for November, seen as a good measure of overall economic health, fell to 48.3 from 50.0 in October.
The UK's all-sector PMI fell to its lowest level in a year at 50.9 – just above the mark that separates contraction from expansion. Even service sector activity in the United States slowed.
Uncertainty over US tariffs coupled with political turmoil in France and Germany could hurt business activity.
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Oil prices
Oil prices ended Friday at a three-week high on expectations that additional sanctions on Russia and Iran could tighten supplies and that lower interest rates in Europe and the United States could boost the demand outlook.
It rose 5% during the week, while gaining 6% during the week and closing at its highest level since November 7.
The European Union agreed to impose the fifteenth package of sanctions on Russia over its war against Ukraine, targeting its oil tanker fleet. The United States is considering similar steps.
The European Central Bank cut interest rates again on Thursday and indicated that further rate cuts are planned in 2025 provided inflation stabilizes at the bank's 2% target as expected.
Meanwhile, investors are betting that the Fed will cut interest rates again on Thursday with more cuts next year.
Lower interest rates could boost economic growth and demand for oil.
