Global markets are increasingly positioning the U.S. for the Federal Reserve’s Dec. 9-10 policy meeting, with investors concluding that current fiscal settings are no longer in line with the economy’s pace of unwinding.

There has been a decisive boost in easing as growth indicators soften and risks continue to recede. The data points to further rate cuts. Labor demand is weakening, consumer spending pressures are emerging, and the inflationary backdrop has become less of a threat. The policy no longer needs to maintain this restriction.

Labor market dynamics remain the focus of expectations for next week’s meeting.

While headline job gains have held up, primary indicators point to cooling demand for workers. Job openings have fallen sharply from their peak, hiring intentions have eased, and wage growth has moderated across sectors. Businesses are adjusting to softer conditions rather than aggressively competing for staff.

Forward-looking labor data carries more weight than backward-looking headlines. Monetary policy has long lags. Central banks that wait for visible stress respond too late.

Consumer behavior reinforces the rationale for action. Household spending has supported U.S. growth over the past two years, but signs of stress are mounting.

Credit reliance is on the rise, delinquency rates are soaring, and excess savings accumulated during the pandemic have been largely wiped out. Consumers are becoming more cautious and more selective, especially around discretionary purchases.

The consumer engine is still running, but it’s no longer fast. This change shifts the risk toward elimination rather than overheating.

At the same time, inflation conditions have changed significantly. Goods prices are contained, services inflation has moderated wage growth and supply-side pressures have normalised.

Although inflation remains above target, the pace and risk profile have changed. The probability of a new inflationary shock to inflation has decreased considerably. Rates were set for a hot-running economy, and that environment has passed. Keeping monetary policy unchanged for too long creates unnecessary downside risk.

For financial markets, next week’s rate cut will confirm rather than disrupt the transition already underway.

Equities have responded to lower expectations, with improving sentiment and rising participation from defensive sectors. A policy move would bolster confidence that the vicious cycle is over and risks to growth are being addressed.

Bond markets will also respond to confirmation that peak rates are behind us. Yields will likely continue to drift lower as investors adjust exposure to duration and reframe future policy paths.

Lower yields will ease fiscal conditions and improve the fixed income outlook after a contractionary year.

Its effects will be felt indirectly. A shift toward easier policy would reduce output support, encouraging modest US dollar weakness over time as global capital flows diversify.

A low-rate US environment alters the global equation. This puts pressure on international markets, improves conditions in emerging economies, and supports broader risk appetite.

Globally, Fed action will extend beyond our borders. Other central banks will have more flexibility, financial conditions will ease around the world, and cross-border investment may recover quickly after a period of tight liquidity expansion.

Policymakers face delays in next week’s meeting. Markets are responding to currently available data. When policy follows this reality, trust is strengthened. Reluctance carries its own risks.

With expectations ahead of the December 9-10 meeting, the economic case for a rate cut is clear, investors are positioned for it, and global markets are preparing for the next phase of the financial cycle.