The main highlight in the European session was the UK CPI report which was basically in line with estimates. Looking ahead, we will also get the Eurozone CPI data but given that it's the Final reading, the market won't care much about it. In the American session, we have the US Housing Starts and Building Permits data but given the focus on the FOMC decision, the market's reaction will likely be muted.
19:00 GMT/14:00 ET - FOMC Policy Decision
The Fed is expected to cut by 25 bps bringing the FFR to 4.25-4.50% (Bowman could be a dissenter again). We will also get the updated Summary of Economic Projections (SEP) where growth and inflation should be revised upwards, and the Dot Plot will likely show two rate cuts in 2025. Fed Chair Powell should acknowledge the strength in the US data and announce a slowdown in the pace of easing.
This is already priced in as the market expects just two rate cuts in 2025 with the first one coming in March at the earliest. Therefore, the market reaction will be driven by deviations from the expectations. As a reminder, the Fed projected four rate cuts in 2025 at the September meeting and will now revise those projections downwards . Therefore, the data in Q1 2025 will be key as it will either increase or decrease further the pricing for rate cuts.
