News
Investors look to the Fed for clues about September rate cut
The Federal Reserve is expected to keep interest rates steady at the conclusion of its monetary policy meeting on Wednesday, while opening the door for a cut in September if inflation continues to show progress.
Investors will be listening for clues about the path forward in a post-meeting statement from Fed officials and a 2:30 p.m. ET news conference with Fed Chairman Jay Powell.
The Fed could make some changes to its policy statement, touting more progress toward the central bank’s 2% inflation target. It could also acknowledge a recent cooling in the labor market.
Powell may also decide at his press conference to give a stronger signal on monetary policy, perhaps even reinforcing market expectations of a likely cut at the Fed’s next meeting on September 17-18.
“We expect Chairman Powell to say the latest inflation readings increase the Fed’s confidence that inflation will move toward its 2% target,” said Morgan Stanley chief economist Ellen Zetner.
At the same time, “we believe he will again notice that the labor market is more balanced,” he added.
Traders and investors will be listening closely today for any clues about the future direction of monetary policy. Photo: REUTERS/Brendan McDermid (Reuters/Reuters)
Some senior Fed officials have been stressing in the weeks leading up to Wednesday’s meeting that they are getting closer to having confidence inflation is falling sustainably to the 2% target.
They also made clear they were paying closer attention to rising unemployment, another sign that cuts could be coming.
Most Fed watchers say the central bank still needs a bit more time to be certain, while also preparing markets for the significant actions to come.
The latest assurance that a cut could be near came on Friday, when a new reading of the Fed’s preferred inflation gauge — the core Personal Consumption Expenditures (PCE) index — showed its smallest annual gain in more than three years.
June’s 2.6 percent annual increase was the same level as May and down from 2.8 percent in April. On a three-month annualized basis, core PCE fell to 2.3 percent from 2.9 percent.
Another measure of inflation, the Consumer Price Index (CPI), also showed progress.
On a core basis — which excludes volatile food and energy prices that the Fed can’t control — CPI rose 3.3% year over year in June. That was down from 3.4% in May and 3.6% in April.
Some Fed watchers argue that the Fed has grounds to support a cut at its meeting this week, even as they note that they do not expect it to happen.
“I don’t see a reason within the economic data why they wouldn’t cut this meeting,” said Luke Tilley, chief economist at Wilmington Trust. “In fact, I find it hard to see a reason why they would keep rates where they are.”
The story continues
That said, there’s “no way” the Fed could do that, Tilley added, because it risks “spooking the markets.”
It predicts one cut in September and another in December, followed by a total of six quarter-point cuts in 2025.
The latest median estimate of the 19 Fed officials who have a say in the direction of rates was for a rate cut this year, a forecast made in early June.
But that was likely influenced by hotter-than-expected inflation data in the first quarter. Now that inflation is cooling again, policymakers may be more open to two cuts before the end of 2024.
The Fed will announce its policy decision on Wednesday at 2:00 p.m. ET, followed by Chair Powell’s press conference at 2:30 p.m. ET.
Click here for an in-depth look at the latest stock market news and events that move stock prices
Read the latest financial and business news from Yahoo Finance