The first Federal Reserve (Fed) meeting in 2025, scheduled for next week, is set to have a considerable impact on the US stock market. Investors are eagerly awaiting decisions on further interest rate cuts, which could serve as a key driver for market growth in the coming months.
At the last meeting held in December, the Fed lowered its forecast for interest rates due to expectations of higher inflation throughout 2024. In response, stock markets showed a decline, reflecting investors' concerns about future economic conditions.
Since then, monthly data has indicated a slowdown in core inflation, bringing relief to Wall Street. This has helped the stock market recover, with the S&P 500 reaching record levels this week.
The slowdown in inflation has played a crucial role in improving market sentiment. This shift in perspective has been supported by the following factors:
- Confidence in economic recovery.
- Expectations of further interest rate cuts.
- Improved corporate profits.
Together, these factors are fostering bullish sentiment among market participants, supporting stock growth.
1. Assessment of Economic Growth. The Fed is likely to evaluate the current economic condition, including an analysis of the latest GDP and employment data.
2. Inflation Forecast. Given the recent trend of slowing inflation, the central bank will review its forecasts for 2025 and refine its interest rate policy.
3. Interest Rate Policy. All eyes will be on the anticipated changes in interest rates aimed at sustaining economic growth.
4. Risks and Challenges. The Fed's statement will undoubtedly highlight potential risks such as external economic pressures and domestic financial imbalances.
With discussions planned for the Fed's meeting next week, the US stock market is particularly sensitive to the following aspects:
- Further Rate Cuts. If the Fed opts for continued rate cuts, it could lead to significant stock growth, especially in the tech sector.
- Maintaining Current Rate Levels. Should the central bank adopt a wait-and-see approach, it might result in temporary market volatility as investors readjust their strategies.
- Anticipating External Factors. Any unexpected external factors, such as global economic events or changes in trade policy, could also significantly influence market sentiment.
