Key Economic Indicators To Watch This Week: Fed and ECB Called To Act After Trump Inauguration

Key Takeaways

• There’s a significant chance the Federal Reserve will keep rates at 4.25–4.50%, maintaining a cautious stance amid economic uncertainty.
• Markets are watching how Jerome Powell responds to Donald Trump’s calls for rate cuts, which could lead to political tensions.
• Investors also see a 96% chance of a rate cut in the Eurozone.

This week is key for markets, with the Federal Reserve‘s anticipated rate decision, an expected European Central Bank rate cut, and major earnings reports dominating the spotlight.

While a mixed outcome is expected from the Fed and ECB, eyes will also turn to major earnings from Meta, Microsoft, Tesla, and Apple to see if AI-driven market gains can continue.

Fed May Pause Cutting Cycle

The key focus this week is the Federal Reserve’s decision. While a rate cut is highly unlikely, with a 99.5% probability of rates staying at 4.25–4.50%, all attention will be on Fed Chair Jerome Powell’s response to Donald Trump’s push for lower interest rates.

Though the Fed is expected to hold steady, it may find itself at the center of a political storm. For financial markets, the spotlight is on the Fed’s decision and how Trump reacts to it.

In comments sent to CCN, Kathleen Brooks, research director at XTB, said, “The Fed could justify its cautious stance by citing resilience in the jobs market and economic policy uncertainty caused by the new administration.

“In December, the Fed said that future rate cuts would be slower than markets were anticipating. If they stick to this message on Wednesday, then they risk igniting the ire of an emboldened Donald Trump. Does Jerome Powell care? His term does not end until 2026, so maybe not,” Brooks said.

However, XTB believes that if Trump does hit back at the Fed, it may trigger some risk aversion in price action.

This means that the dollar could attract some safe-haven flows, and stocks may sell off, with cyclical stocks more exposed to a spat between the Fed and Donald Trump.

Eurozone Data Push for New ECB Cut

On the other side of the Ocean, there’s a 96% probability the European Central Bank will cut rates this week, with markets firmly expecting action after the central bank highlighted downside risks to Eurozone growth in December 2024.

January’s slight uptick in PMI data isn’t likely to change these expectations, Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank. told CCN.

The key focus will be on what the ECB signals about future policy, as the rate decision will arrive on Thursday, followed by Christine Lagarde’s press conference.

Lagarde’s press conference will be crucial for gauging the pace of future rate cuts. After Thursday’s anticipated move, markets are pricing in 2.5 more cuts for 2025.

However, Lagarde might avoid offering a clear signal for two reasons: first, green shoots of economic recovery and elevated inflation concerns stemming from wage growth; second, uncertainty around U.S. monetary policy, especially with Trump’s recent interventions into the Fed’s decisions.

The ECB will need to strike a balance—keeping pace with U.S. rate cuts to maintain European competitiveness and avoid sharp euro movements.

This added layer of geopolitical and monetary complexity could heighten market volatility during this week’s central bank meetings.

Earnings To Watch This Week

This week is pivotal for traders seeking clarity on the bull market, as four of the Magnificent Seven companies will release quarterly earnings . Meta Platforms, Microsoft, and Tesla will report on Wednesday, followed by Apple on Thursday.

These Big Tech earnings will serve as a litmus test for the sustainability of AI-driven market gains. Strong results could boost confidence, while any disappointment may impact the broader market, with the Magnificent Seven accounting for approximately 40% of its value.

Beyond Big Tech, Starbucks, Boeing, General Motors, Visa, and Exxon earnings are also on the docket this week.

So far, earnings season has been solid. Of the 16% of S&P 500 companies that have reported Q4 results, 80% have delivered positive earnings surprises, while 62% exceeded revenue expectations.