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The Stock Market Had a Terrible Week—and Now the Fed Meeting Is on Tap

Don’t be surprised if Fed Chairman Jerome Powell decides to play the Grinch at Wednesday’s press conference.

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Graeme Sloan/Bloomberg

Things tend to slow down for the holidays. The stock market isn’t there yet.

With Christmas just a couple of weeks away, it’s easy to look ahead to candy canes, caroling, and presents under the tree, but there’s still work to be done. The coming week certainly won’t be boring, with highly anticipated inflation data and a Federal Reserve decision on back-to-back days. The two events will do much to determine the direction of the market for the coming weeks—a deeper slide or a resumption of the Santa Claus rally.

All eyes will be on the November consumer price index, out Tuesday morning. It’s expected to show some moderation in inflation from the reading a year ago on the headline and core levels—but for both to remain above 6%.

In a potential preview, this past Friday’s producer price index showed a continued slowing in the rate of price increases, but not as much as expected. Stock indexes ticked down on Friday after an attempt at a rebound fizzled in the afternoon. The
S&P 500
closed the week off 3.4%, the
Dow Jones Industrial Average
slid 2.8%, and the
Nasdaq Composite
lost 4%.

That tepid reaction to a less-promising-than-hoped inflation number might be due to stocks’ preemptive slide heading into the release. It’s possible that the market faces a similar setup when the CPI is released on Tuesday, with slightly slower inflation—even if above expectations—met with a shrug by investors, while a hot print could see only a modest selloff. But if the CPI surprises to the downside, stocks should rally strongly. It would mark the fifth consecutive month of cooling inflation in the current cycle.

Then, it’s up to the Fed. Wednesday afternoon will bring the conclusion of the Federal Open Market Committee’s December meeting and an interest-rate decision. Futures markets are set on a 0.5-percentage-point increase in the federal-funds rate, to a target range of 4.25% to 4.5%, following four consecutive 0.75-point hikes. That move was as good as confirmed by Chairman Jerome Powell in recent remarks.

Don’t be surprised, though, if Powell decides to play the Grinch at Wednesday’s press conference—keeping up his hawkish tone to temper hopes for a policy pivot. That’s doubly true if the market surges after the CPI report on Tuesday.

Powell should also have plenty to say about any changes in the FOMC’s Summary of Economic Projections, the so-called dot plot. Futures pricing currently implies a peak rate of just over 5% by the middle of next year, in line with Fed officials’ latest projections from September. Should the median dot on Wednesday come in above that, it could send growth stocks lower and bond yields higher.

Then again, the markets have shown that they’re eager to look beyond the tightening to what comes next, even when Fed governors declare that the fight against inflation is far from over. Coming at a historically strong period for stocks—and after a weeklong slide—it wouldn’t take much for shares to push their way higher.

Not when there’s a holiday rally to be had.

Write to Nicholas Jasinski at


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