Week Ahead: December FOMC — What Markets Will Be Watching

The December FOMC meeting tops the economic calendar this week as markets parse incoming data for clues on the Federal Reserve's next move. Investors will focus on messaging from Chair Jerome Powell, any changes to the dot plot and the Fed's summary of economic projections. While unemployment remains low and inflation has moderated from peak levels, persistent price pressures and strong wage growth leave the central bank with a delicate balancing act.

Ahead of the decision, key macro releases — including latest inflation measures, retail sales and labor market indicators — are likely to influence market expectations for the path of interest rates. Traders will also watch Treasury yields closely; a surprise shift in the tone from the Fed could prompt rapid moves across the curve, feeding through to mortgage rates and corporate borrowing costs.

Equity markets are positioned for potential volatility. Financials often respond to rate guidance and yield dynamics, while growth-sensitive sectors such as technology react to changes in discount-rate assumptions. Options volumes and positioning ahead of the meeting could amplify intraday swings if the post-meeting statement and Powell's press conference deviate from consensus.

On the fixed-income side, demand for safe-haven assets may fluctuate as investors reassess recession risk versus sticky inflation. Longer-duration bond ETFs and benchmark yields will be barometers of market conviction about future rate cuts or hikes. Inflation expectations, as reflected in breakevens and real yields, will also be closely monitored.

Beyond headlines, attention will turn to any hints about the Fed's balance sheet policy and the timetable for reducing or stabilizing holdings. Markets will read subtext in wording about "higher for longer" versus an easing trajectory. International implications matter too: a stronger dollar or divergent global central bank paths can feed back into currency and commodity markets.

Traders and portfolio managers should plan for elevated headline risk midweek, with position sizing and stop management important for navigating potential whipsaw moves. For longer-term investors, this week's outcome may recalibrate expectations but is unlikely to fully resolve the broader debate over how quickly and how far policy will normalize.