Global stock markets paused their strong weekly rally on Friday, as investors balanced growing expectations of a United States interest rate cut against a series of crucial economic reports due before the Federal Reserve's final decision of the year.

For Kenyans, the impending decision from the world's most influential central bank is critical. A rate cut in the U.S. typically weakens the dollar, which could strengthen the Kenyan shilling, lower the cost of crucial imports like fuel and food, and reduce the burden of servicing the country's dollar-denominated debt.

Why the Fed's Move Matters for Your Wallet

When the U.S. Federal Reserve cuts its interest rate, it becomes less attractive for global investors to hold dollar-denominated assets. This can lead to increased investment in emerging markets like Kenya, as investors search for higher returns. Kiprono Kittony, Chairman of the Nairobi Securities Exchange, has previously noted that such moves are expected to drive dollar inflows, boosting local stocks and bonds.

Conversely, if the Fed holds rates steady, the dollar could strengthen, putting pressure on the shilling and increasing the cost to the government of repaying foreign loans. This can divert funds from essential public services.

All Eyes on December Data

The recent market optimism was fuelled by comments from several top Fed officials who signalled they would back a rate reduction, citing concerns over a weakening American labour market. However, the path to a cut is not guaranteed. The Fed's final 2025 policy meeting is scheduled for December 9-10, and policymakers will be closely watching key data before then.

Key reports investors are watching include:

• Jobs Data: After a recent government shutdown delayed some releases, combined jobs data for October and November is now expected after the Fed's meeting. However, private sector data has pointed to a weakening labour market.
• Inflation Gauges: The Fed's preferred measure of inflation, the personal consumption expenditure (PCE) index, will be a major factor. While overall inflation in Kenya has remained within the Central Bank's target range, high food and fuel prices continue to strain household budgets.

While many analysts believe a rate cut is likely, some advise caution. The Central Bank of Kenya (CBK) has been on its own rate-cutting path, lowering its benchmark rate in October for the eighth consecutive time to stimulate the economy. This could temper the positive impact of a Fed move if the interest rate difference between the two nations remains stable.

The coming weeks will reveal whether the market's optimism was justified, with the Fed's decision set to define the economic landscape heading into 2026.