Federal Reserve in the Spotlight: Key Things to Keep in Mind This Week

Federal Reserve in the Spotlight: Key Things to Keep in Mind This Week

The main American stock indices have fell to record levels ahead of the Federal Reserve’s all-important March meeting.

On Wednesday, this tension will finally be resolved.

The U.S. central bank is set to release its latest monetary policy decision and updated economic projections Wednesday afternoon at 2:00 p.m. ET, as investors seek an answer to a key question: the Fed I still think he will cut rates three times in 2024?

Recent data showing inflation has not fallen as quickly as expected pushed back market forecasts for Fed rate cuts this year from six to three. The question then becomes whether a few months of stubborn inflation data will be enough to prompt the Fed to make further adjustments.

Elsewhere on the calendar this week, Nike (OF), Lululemon (LULU), FedEx (FDX), and Micron (IN) are all set to report results on Thursday, underscoring what is otherwise expected to be a relatively quiet schedule for corporate earnings. As for the IPO, Reddit is expected to debut on the public market on Thursday under the ticker symbol “RDT” as investors continue to weigh the size of the IPO. last year’s frozen market for new issues thawed in 2024.

NVIDIA (NVDA) will also welcome its annual GTC conference on Mondaywith investors highly focused on the company’s product roadmap as it faces a massive surge in demand for its chips amid the AI ​​boom.

The stock is up more than 260% over the past year, although shares have been roughly flat over the past two weeks as investors wait ahead of this event and the Fed meeting this week.

The Fed at the center of attention

Investors are not considering a change in the Fed’s benchmark interest rates, which are expected to remain in the range of 5.25% to 5.50%, where they have been since last July.

This means that investors will have their full attention on both the Fed’s latest summary of economic projections (SEP) and, as always, Fed Chairman Jerome Powell’s press conference, which will begin 30 minutes after the publication of the SEP and the political declaration.

Matthew Luzzetti, Deutsche Bank’s chief U.S. economist, wrote in a note to clients on Friday that he believed recent inflation figures would prompt the Fed to adopt a “hawkish” stance on Wednesday.

In other words, don’t expect the Fed to spend much time pushing back against market expectations, which is content to wait before cutting rates this year.

“Chairman Powell’s press conference is expected to emphasize that while officials remain confident that inflation is on the desired path, achieving lower inflation numbers in the coming months is a necessary condition to begin easing politics,” Luzzetti said.

Following the Fed’s December meeting, investors raised the possibility of a rate cut in January, with March seen as a mere formality. Before this week’s meeting, CME Group data showed that rate cuts are not considered to have a greater than 50% probability until July.

A market decline from points?

In December, part of the SEP known as “dot plot” which outlines policymakers’ expectations for future interest rate developments, shows that officials are planning three interest rate cuts this year.

Bank of America economist Michael Gapen wrote in a note to clients that any change in those forecasts would be “the biggest concern for markets” on Wednesday.

Economists noted that it would take just two officials seeing rates higher than the last release to push the consensus to just two rate cuts this year.

Considering the markets have progressed higher Regarding the prospect of a rate cut by the Fed this year, a reduction in rate cuts could be seen as a threat to the market recovery. But some argue that shouldn’t matter.

Federal Reserve in the Spotlight: Key Things to Keep in Mind This Week

Federal Reserve Chairman Jerome Powell holds a news conference following the release of the Fed’s interest rate policy decision at the Federal Reserve in Washington, the United States, January 31 2024. REUTERS/Evelyn Hockstein (Reuters/Reuters)

Neil Dutta, head of economic research at Renaissance Macro, for example, wrote in a note to his clients this week that he was “skeptical” about market developments if the Fed projected a rate cut of less than this year.

Dutta argued that if the Fed reverses its planned interest rate cut this year, it would likely be accompanied by an upward revision to economic growth. “The erasure of a decline in 2024 will not have much significance for the equity market, it is a benign event,” Dutta wrote. “Ultimately, a stronger nominal growth outlook implies a stronger earnings outlook.”

Ohsung Kwon, Bank of America’s U.S. and Canadian equity strategist, expressed a similar view when Yahoo Finance recently asked him whether the Fed poses a risk to the company. new call for the S&P 500 to reach 5,400 by the end of this year thanks to rising corporate profits.

“If the Fed chooses not to cut rates, then I think it will be because the economy is too hot,” Kwon said. “I don’t think earnings are falling because the Fed doesn’t cut rates if the economy is too hot.”

The risk for businesses would lie in refinancing debt, Kwon said. But with 75% of S&P 500 debt already fixed long-term, the impact of a rate hike would be limited for the large-cap index.

Weekly calendar

Monday

Economic news: New York Fed services business activity, March (-7.3 previously); NAHB Housing Market Index, March (48 expected, 48 previously)

Earnings: No notable gains.

Tuesday

Economic news: Building permits from one month to the next, February (+2% expected, -0.3% previously); Housing starts, month over month, February (+7.4% expected, -14.8% previously)

Earnings: XPeng (XPEV)

Wednesday

Economic news: FOMC rate decision; MBA mortgage applications, week ending March 15 (previously 7.1%)

Earnings: Soft (BLOW), Five below (FIVE), General mills (GIS), Guess (GHG), Knowledge Base Home (KBH), microns (IN)

THURSDAY

Economic news: Philadelphia Fed Business Outlook, March (-1.3 expected, 5.2 previously); First unemployment registrations, week ending March 16 (215,000 expected, 209,000 previously); S&P US Manufacturing PMI, March (51.8 expected, 52.2 previously); S&P Global US Services PMI, March (52.0 expected, 52.3 previously); US S&P Composite PMI, March (previously 52.5); Leading index, February (-0.2% expected, -0.4% previously); Existing home sales, February, month-over-month (-1.6% expected, 3.1% previously)

Earnings: Accenture (ACN), Sports + Outdoor Academy (ASS), Restaurants in Darden (DRI), FactSet(MSDS), FedEx (FDX), Lululemon (LULU), Nike (OF)

Friday

Economic news: No notable economic data.

Earnings: No notable gains.

Josh Schafer is a reporter for Yahoo Finance. Follow him on @_joshschafer.

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