Christopher Zook, chief investment officer at CAZ Investments, weighed in on the Fed’s response to the economy, the Japanese yen and tech earnings as interest rate cut expectations plummet.
Wall Street is bracing for a rare doubleheader on Wednesday, with the latest inflation data due to be released in the morning and Federal Reserve It is due to announce its interest rate decision in the afternoon.
“Wednesday will be an exciting day with the CPI report in the morning and the FOMC meeting statement in the afternoon,” said David Donabedian, chief investment officer at CIBC Private Wealth U.S. “This will resolve two of the biggest issues for the market — inflation and monetary policy — in one day.”
Investors will get a chance to find out just how high inflation was in May just hours before the Fed wraps up a two-day meeting and issues new economic forecasts that will project the direction of interest rates this year.
According to Bank of America, since 2014, the CPI report and the Fed’s policy meeting have only occurred on the same day seven times. U.S. Economy And that risks destabilizing the stock market.
The Fed’s inflation strategy weighs heavily on middle-class Americans
May inflation data may show ‘sticky’ price pressures
Economists expect the consumer price index, which measures a range of goods including gasoline, health care, groceries and rent, to have risen 3.4% in May, unchanged from the previous month.
Month by month, Inflation is being seen This is up 0.1% from 0.3% in April.
“This marks the 12th consecutive month that the CPI has lurched between 3.7% and 3.1%,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Several promising sets of downward trends have been followed by disappointing sets of readings, resulting in the CPI going nowhere in a year. This is a maddening, troubling and stubborn situation.”
Other parts of the report are expected to point to a more gradual decline in inflation. Core prices, which exclude volatile measures like food and energy, are now forecast to rise 3.6% annually. That’s up slightly from a 3.5% increase in April, suggesting underlying price pressures remain strong.
Rents have stagnated, suggesting high inflation may continue
The Federal Reserve’s target interest rate is 2%, but central bank policymakers tend to rely on a different measure of inflation called personal consumption expenditures (PCE).
The Labor Department is scheduled to release the data at 8:30 a.m. ET on Wednesday.
Fed expected to keep interest rates at 23-year high
Federal Reserve officials are widely expected to keep interest rates on hold in a range of 5.25% to 5.5%, the highest level in 23 years.
But investors will be more focused on the updated quarterly economic forecasts due to be released after the Fed meets, which will also include a forecast of where policymakers expect key interest rates to be at the end of 2024.
Federal Reserve Chairman Jerome Powell speaks during a press conference following the Federal Open Market Committee meeting in Washington, DC on March 22, 2023. (Al Drago/Bloomberg via Getty Images/Getty Images)
Economists expect the Fed to adjust its so-called dot plot to indicate policymakers may cut interest rates two times this year, rather than the three they planned when they met in March.Other changes economists think could be made to the forecast include slower economic growth and higher inflation at the end of the year.
Fed in no rush to cut rates until inflation is overcome, Powell says
Experts say they will be keeping a close eye on the situation. Federal Reserve Chairman Jerome Powell At his press conference at 2:30 pm ET, it will be interesting to see if he offers any hints about the future direction of monetary policy. Powell is expected to stick to his message that policy has likely peaked in this tightening cycle, but that the central bank needs more evidence that inflation has been conquered before cutting back.
“We’re not likely to see any major changes to the FOMC statement or Chairman Powell’s messaging at the June meeting,” said Goldman Sachs economist David Mericle. “The most talked-about theme of Chairman Powell’s last press conference in May was his pushback against the possibility of a rate hike, but talk of rate hikes has died down in the market since then.”
Pedestrians pass by the Marriner S. Eccles Federal Reserve Bank Building in Washington, DC on June 3, 2023. (Photographer: Nathan Howard/Bloomberg/Getty Images)
Policymakers will raise interest rates sharply in 2022 and 2023 to their highest levels since the 1980s, Slow down the economy And with inflation treading water, Fed officials are now wondering when to take their foot off the brake.
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Most investors now expect the Fed to start cutting rates in September and just two more this year — a dramatic change from earlier this year, when they expected as many as six rate cuts to begin as early as March.
Higher federal interest rates tend to translate into higher interest rates on consumer and business loans, forcing employers to cut spending and slowing the economy. Rising rates have pushed the average interest rate on a 30-year mortgage above 7% for the first time in years. The cost of borrowing for everything from home equity loans to auto loans to credit cards has also soared.
