Global equity markets started the week on a positive note as investor sentiment improved significantly amid growing expectations that the U.S. Federal Reserve will reduce interest rates in its upcoming December meeting. Market participants cited softer labor data and favorable inflation trends as key drivers behind the increased bets on a rate cut, which is now seen as nearly an 85% probability according to CME’s FedWatch tool.

The prospect of lower borrowing costs has fueled rallies across major stock indices worldwide, with the S&P 500 [finance:S&P 500] gaining approximately 1.6% and the Nasdaq climbing around 2.7%, supported by strong performances from leading technology companies such as Alphabet, Meta, and Amazon. Asian markets also saw significant rebounds, particularly in technology shares, contributing to a broad-based global recovery from the previous week’s declines.

Economists and market analysts suggest that the Federal Reserve’s decision to potentially trim its target federal funds rate by 25 basis points would be aimed at cushioning a slowing labor market and sustaining moderate economic growth. However, some policymakers remain cautious, emphasizing a data-dependent approach given that inflation pressures remain elevated despite recent easing.

While recent rate cuts earlier in the year have already lowered the Fed funds rate to a range of 3.75%-4.00%, further reductions are anticipated to ease borrowing costs for consumers and businesses, potentially stimulating spending and investment. Nonetheless, the Fed faces a balancing act to avoid rekindling inflation while supporting economic expansion.