The Paris stock market opened lower on Tuesday morning, dragged down by a sharp rise in bond yields as investors adopt an increasingly cautious stance ahead of the highly anticipated announcements from the U.S. Federal Reserve. The CAC 40 index slipped 0.3% to around 8,080 points.

The Federal Open Market Committee (FOMC) meeting begins today and will conclude tomorrow with a press conference from Chairman Jerome Powell, as well as the release of the central bank's latest economic forecasts.

According to the CME's FedWatch tool, more than 89% of market participants now expect the institution to announce another quarter-point rate cut on Wednesday—the third such move in less than three months.

While this reduction in borrowing costs is widely anticipated, the timeline for future Fed decisions in 2026 remains much more uncertain.

"The real issue is understanding what pace of easing will be implemented next year," notes Christopher Dembik, investment strategy advisor at Pictet AM.

"We will need to be patient and probably wait for the appointment of Jerome Powell's successor, which could happen in the coming weeks, to know more," the analyst adds.

At J. Safra Sarasin, experts expect another "precautionary" rate cut tomorrow, but the Swiss private bank's teams also believe that it will become "much more difficult to implement all the rate cuts currently priced in by the markets, even with a more dovish Fed Chair."

In this context, market players will be watching closely for any guidance provided tomorrow by the head of the Fed to refine their bets on the continuation of the central bank's accommodative monetary policy next year.

Judging by the bond markets, the prospect of two further rate cuts in 2026 seems far from guaranteed.

The deterioration is particularly striking in the United States, where Treasury yields have eased significantly in recent days, with uncertainty over the Fed's comments prompting investors to sell long-dated bonds.

At over 4.17%, the yield on the ten-year Treasury note returned last night to levels last seen in early November, when Jerome Powell surprised the market by indicating that a December rate cut was "far from certain."

The yield on the ten-year German Bund, a key benchmark in the eurozone, also climbed ten basis points on Monday to exceed 2.87%.

Even though the predictive power of yield curves can legitimately be questioned, the emergence of this contrarian signal in the bond market led equities to show greater indecision yesterday.

Perfectly illustrating this phase of hesitation, the CAC 40 recorded its sixth consecutive session of near stagnation last night, slipping 0.1% to 8,108.4 points.

Wall Street is also showing signs of fatigue, with major New York indices still stalling below their recent highs.

Monday's session was relatively uneventful, resulting in subdued volatility and lackluster performances: at the closing bell, the Dow Jones fell 0.4%, the S&P 500 gave up 0.3%, and the Nasdaq Composite edged down by about 0.1%.

With the S&P posting gains since the start of the year, 2024 has been a fruitful year in New York, and few seem willing to take major positions in this environment.

With little news expected following the Fed meeting before year-end, some investors may even look to close their books early.