US Fed Meeting on Wednesday: Potential Catalyst for More Market Volatility

The week has already started on a turbulent note in financial markets, with Nasdaq and Dow Jones futures posting significant declines, triggered by artificial intelligence (AI) innovations from Chinese startup DeepSeek. This initial instability could intensify depending on the developments of the next meeting of the United States Federal Reserve (Fed), which will take place this Wednesday 29th, in Washington, DC.

The impact of the allegations of DeepSeek , which claims its AI assistant can operate as efficiently as leading models using cheaper chips and less data, has resonated across markets, prompting a reassessment of expectations about future AI-driven growth. This has added an extra layer of uncertainty to already volatile expectations for the Fed meeting.

The Federal Reserve faces a difficult time at its first meeting of 2025, where it will have to navigate pressure to lower interest rates, vocalized openly by President Donald Trump, and the need to combat persistent inflation that has increasingly worried policymakers. Trump has been pushing for lower rates, arguing that they are crucial for the economy, while the Fed has signaled a more cautious approach.

Judging by the sentiment among investors and analysts, rates are expected to remain stable. The prevailing expectation is that the Fed will not make any immediate changes to monetary policy, preferring to monitor more closely the effects of inflation and the consequences of the current administration's trade and immigration policies, which could put additional pressure on prices.

This meeting is particularly critical as it could set the tone for monetary policy in a year that is already shaping up to be challenging. With markets already on alert due to Chinese technological advances in AI and domestic political disputes in the US, any signal from the Fed could trigger significant movements in both stocks and bond and currency markets.

Investors are, for now, positioning their bets around rate stability, but are keeping an eye on any new information that may emerge from the Fed meeting.