Holiday-Shortened Week Could See Big Swings as PCE Inflation Shapes Fed Outlook

What Traders Are Watching This Thanksgiving Week

Traders are bracing for a holiday-shortened week packed with key economic data releases and potential market-moving updates. With U.S. markets closed Thursday for Thanksgiving and bond markets closing early on Friday, attention will focus on critical reports earlier in the week, including October’s Personal Consumption Expenditures (PCE) inflation index, third-quarter GDP revisions, and minutes from the Federal Reserve’s November meeting. These events will likely shape sentiment across equity, bond, and forex markets.

What Traders Need to Know Right Now

The October PCE inflation index, set for release on Wednesday, will be a primary focus. As the Federal Reserve’s preferred measure of inflation, this report will offer insight into price stability and consumer spending trends. September’s PCE reading showed inflation close to the Fed’s 2% target, but recent pressures suggest the potential for an uptick. A higher-than-expected figure could dampen hopes for further rate cuts, while a softer reading may keep the door open for monetary easing.

Also on Wednesday, the first revision to third-quarter GDP will update the initial estimate of 2.8% annualized growth. Investors will watch closely for signs of strength or weakness, as the data could reinforce the Fed’s confidence in the U.S. economy or raise concerns about underlying vulnerabilities.

The minutes from the Federal Reserve’s November meeting, due Tuesday, will likely provide a detailed view of policymakers’ debates surrounding their latest rate cut and their outlook for inflation, employment, and growth. Traders are anticipating clues on whether further rate reductions are likely, particularly in light of potential inflationary pressures tied to President-elect Trump’s proposed fiscal policies.

Tuesday will also feature the Conference Board’s consumer confidence report, which is expected to reflect sentiment post-election. Housing market updates, including the Case-Shiller Home Price Index and October’s new home sales, will add further context to the economic picture. Meanwhile, durable goods orders, jobless claims, and other data on Wednesday will offer additional indicators of the economy’s health heading into the holiday season.

Where Could the Market Be Headed Next?

This week’s data could set the tone for December’s trading. If the PCE inflation index indicates rising price pressures, rate-sensitive sectors may face headwinds as traders anticipate a pause or slowdown in the Federal Reserve’s easing cycle. Conversely, weaker inflation data and signs of slower growth in the GDP revision could foster a more bullish outlook, particularly in the bond market, as expectations for additional rate cuts persist.

In equities, consumer confidence and strong housing data could provide a tailwind, signaling resilience in key sectors. Forex markets, meanwhile, will watch the U.S. dollar closely for reactions to the Fed minutes and PCE data, particularly against safe-haven currencies like the yen.

With liquidity expected to thin heading into the holiday, traders should prepare for sharper-than-usual moves in response to economic releases earlier in the week.