The Federal Reserve's next move on interest rates hinges on a series of key events this week, including tech earnings and fresh economic data. While the Fed is expected to hold rates steady at its upcoming meeting, investors are closely watching for signals about a potential December rate hike. The CME Group’s FedWatch tool shows a 73% chance of an increase in December, with economists from Citigroup and Morgan Stanley also anticipating a move, provided financial conditions remain stable.
Inflation remains above the Fed’s 2% target, and the ongoing oil shock is spreading through the economy. However, economic growth has been resilient, even as hiring slows and lower-income households struggle with higher prices. The tech sector, particularly AI investments, has been a bright spot, but investors are growing cautious about the lack of clear returns.
The Nasdaq has dropped about 5% from its October high, and semiconductor stocks have fallen 12% in the past month. Meta shares tumbled after the company announced a $95 billion stock offering to fund AI investments, raising concerns about profitability. Rising interest rates are also making borrowing more expensive for AI infrastructure, adding to investor anxiety.
Fed Chair Kevin Warsh has avoided providing forward guidance, preferring to assess each meeting independently. Other Fed officials, like John Williams and Philip Jefferson, have helped clarify that an October rate hike is unlikely. This week’s events, including tech earnings and economic data, will shape the conditions for the December decision.