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If the FOMC reduces the federal funds rate this week, it would be at its lowest level in three years.
The Federal Open Market Committee (FOMC) meets this week for the last time this year to decide whether or not to lower interest rates.
The committee has lowered the federal funds rate in its last two meetings in September and October, so another move lower would make it three straight to end the year.
Currently, the rate is set at a range of 3.75% to 4.00% after being reduced by 25 basis points at each of the last two meetings. Roughly 89.6% of interest rate traders anticipate another 25-basis point cut this week when the FOMC meets on Tuesday and Wednesday. That would bring the range down to 3.50% to 3.75%.
“Comerica Economics forecasts for the Federal Open Market Committee (FOMC) to cut the federal funds target a quarter of a percentage point to a range of 3.50% and 3.75% at its last decision of the year this Wednesday,” Bill Adams, chief economist for Comerica Bank, said. “Several FOMC members will likely dissent again. The Fed will likely be tight-lipped about the outlook for rates in 2026 given conflicting views among FOMC members.
If the rate is reduced this week, it would be at its lowest level since September of 2022.
Why is this significant? The federal funds rate is simply the rate at which the Fed sets for banks to charge for lending money to one another. But it is very influential and has a ripple effect on rates that consumers pay for credit cards, personal loans, car loans, HELOCs, etc – also known as the prime rate. But those rates don’t track exactly with the federal funds rate and will differ, but they will generally move in the same direction.
So, the markets generally go up when rates come down, because it means that companies are being charged less to borrow money, which often leads to more investment and growth. That, in turn, tends to make stocks move higher, particularly those of growth and technology companies.
The FOMC announcement on rates will come on Wednesday at 2:00 p.m. ET.
Broadcom and Oracle on Tap This Week
Earnings season is winding down, but there are two massive technology companies reporting their quarterly results this week – Broadcom and Oracle.
Broadcom is not considered one of the magnificent 7 tech stocks, but it should be. It is the sixth largest company in the world by market cap, valued at $1.9 trillion. And is larger than two of the so-called Magnificent 7 – Meta and Tesla.
Broadcom, which makes chips for broadband and mobile networks, reports its fiscal fourth quarter earnings on Thursday after the market closes. Analysts anticipate earnings of $1.87 per share, which would be up 32% year-over-year, and revenue of $17.5 billion, which would be about 24% higher than the same quarter a year ago.
Broadcom stock has and another fantastic year, up about 73% year-to-date. That’s after returning 110% in 2024 and 104% in 2023.
Over the past three years, Broadcom stock has an average annualized return of 97% per year, and over the past five years the stock has averaged a 57% annualized return.
The other big earnings report to watch this week is Oracle, the cloud computing giant which is the 17th largest company by market cap.
When Oracle report earnings Wednesday after the closing bell, Wall Street analysts anticipate earnings of $1.64 per share, which would be 12% higher year over year. Revenue is targeted at $16.2 billion, which would be up 15%.
Oracle stock is up 32% YTD.