This week’s Federal Open Market Committee (FOMC*) sets the tone for year-end. Futures markets lean toward a 0.25 percentage point (25 basis points) cut, but the real story is the new “dot plot*” inside the Fed’s Summary of Economic Projections (SEP*). That chart shows each official’s year-ahead rate path—and how united (or not) they are. A wider spread of dots means less confidence, which can lift volatility.
Why cut now? Inflation is easing, led by core PCE* running at 2.8% year-over-year, while hiring demand has cooled from peak levels. Tuesday’s JOLTS* openings will add one more labor read before the decision. If openings keep edging down, that supports a cut. If they pop, the Fed may temper 2026 rate-cut projections.
Balance sheet policy matters too. The Fed formally ended quantitative tightening (QT*) on December 1 and will now reinvest into Treasuries, which helps steady money markets. Any hint of “reserve-management” purchases in 2026 would be technical, not stimulus—and still market-moving.
Market playbook:
Cut + steady dots: Stocks up, yields drift lower, dollar soft, gold firm; tech leads.
Cut + higher dots: Short-term yields jump; growth stocks wobble; dollar bounces.
No cut / multiple dissents: Broad risk-off; yields and dollar up; defensives outperform.
Key timing: Policy statement and SEP at 2:00 p.m. ET; Chair Powell’s press conference at 2:30 p.m. ET on Wednesday. Translation: first move on headlines, second move on Powell’s tone.
📚 Decoder
Core PCE: Inflation measure excluding food and energy; Fed’s favorite gauge.
Dot plot: Fed officials’ rate forecasts shown as individual dots.
FOMC: Fed committee that sets interest rates and policy.
JOLTS: Monthly job openings, hires, quits, and separations report.
QT (quantitative tightening): Shrinking the Fed’s bond holdings.
SEP (Summary of Economic Projections): Fed forecasts for growth, jobs, inflation, and rates.
⏱️ That’s this week’s Signal Spotlight.
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Educational only—not investment advice.