Today we will learn the Fed's preferred measure of inflation

Before markets head out for the Christmas and New Year break, they'll get one last look at U.S. inflation with Friday's report on Americans' personal spending.

Low values ​​may fuel speculation even more possible quick cuts in interest rates by the Fed, higher results will cool the market sentiment and may result in an increase in the yield of American bonds and a decline in the stock market.

Will the Fed make quick cuts?

Euphoria after the signals Federal Reservethat rate increases are now over and that cuts will be taken into account has resulted in interest rate futures markets pricing in a 150 basis point reduction next year.

Traders see approx. 80 percent chances of a rate cut in March. The 10-year Treasury yield, currently 3,9%, has fallen more than 110 basis points from just above 5%. at the end of October.

The market bet is that falling inflation will force the Fed to cut quickly to prevent real interest rates from rising. Two-thirds of 251 participants in a December Bank of America survey of fund managers see a soft landing for the U.S. economy, and investors are the most optimistic about bonds since March 2009.

Unstable markets in the pre-Christmas period

Yesterday's data about CBA from the US disappointed with lower numbers, which to some extent suggests that today's report on American spending may as well fall below the consensus. The final GDP for the third quarter was 4,9%. The forecast indicated 5,2 percent. Private consumption also grew at a slower pace than expected and amounted to 3,1%.

Wednesday's correction on Wall Street (due to the words of Harker from the Fed) suggests that markets will be unstable in the pre-Christmas period, so Today's session may be tense and bring higher volatility.

This morning, data from Great Britain on GDP and retail sales will be published. This week we already received a surprise in the form of lower inflation data, to which the pound responded by weakening and the British FTSE index gained. Lower CPI readings are, to some extent, an argument for the BoE to cut interest rates slightly earlier.

Source: OANDA TMS Brokers