Focus now on labor report, says Morgan Stanley’s Jim Caron
The market is anticipating the Federal Reserve’s first rate cut will come in December, yet many forecasters are thinking July, said Jim Caron, chief investment officer of the portfolio solutions group at Morgan Stanley Investment Management.
For Caron, the answer will come down to what happens with the labor market.
“The fly in the ointment is going to be the labor report. If the labor market starts to weaken, I think that advances the time scale for the Fed to start to cut earlier,” Caron said on CNBC’s “Power Lunch. “If the labor market stays strong I think that they are going to stay on probably until December.”
— Michelle Fox
See what changed in the new Fed statement
The Fed released its latest statement Wednesday afternoon. Notably, the central bank pointed to a lack of progress in getting inflation back to the 2% goal.
Click here to see what changed compared with what was released at the previous meeting in March.
— Alex Harring
Federal Reserve leaves interest rates unchanged
Central bank policymakers held steady on interest rates at the conclusion of their meeting, a move that was widely expected by the markets.
The fed funds target rate remains at its 5.25% to 5.5% range.
The Federal Reserve called out a “lack of further progress” in getting inflation down to its 2% target.
Read more about the Fed’s latest decision from CNBC’s Jeff Cox.
— Darla Mercado
Markets before the Fed’s policy decision announcement
The S&P 500 and the Nasdaq Composite were each down about 0.2% as the Federal Reserve prepares for its rate decision. The Dow Jones Industrial Average was higher by roughly 130 points, or 0.3%.
The yield on the 2-year Treasury was lower by about 3 basis points at 5.012%, while the rate on the 10-year Treasury inched lower by nearly 4 basis points to 4.647%.
— Darla Mercado
Don’t expect too many details on the rate path from Powell, Russell Investments’ BeiChen Lin says
Federal Reserve Chair Jerome Powell likely will not provide too many particulars on when the first rate cut will come, according to BeiChen Lin, investment strategist at Russell Investments.
“I think Chair Powell may heed the ‘silence is golden’ maxim at this week’s press conference after its May Fed meeting,” he said in a written statement. “He’ll likely try to say as little as possible about when he expects the first rate cut to come in order to preserve optionality.”
The strategist noted that while market participants have been concerned about inflation being sticky, he noted that wage pressures “are likely to continue easing into 2024 as the labor markets further normalize.”
“Since wages are a key input cost for many services businesses, a cooling in wage growth can also help lower overall price pressures,” Lin said, noting that he thinks the likelihood of the Fed having to raise rates is “very, very low.”
“Even with the upside surprise to inflation in Q1, we still think the Fed will be in a position to cut interest rates this year, likely in September and December,” the strategist said.
— Darla Mercado
Vanguard sees a ‘deferred landing’ and a cautious Fed
The recent blast of hot inflation data is making the odds of a hoped-for “soft landing” less likely, according to Vanguard economists Joe Davis and Josh Hirt.
Most recently, the employment cost index, which tracks salaries and benefits, grew more than expected in the first quarter. That reading comes after the core personal consumption expenditures price index was hotter than economists anticipated for March.
“With inflation data continuing to be surprisingly hot for the past quarter, the narrative that these surprises are all attributable to ‘one offs’ in individual components is becoming harder to sustain,” Davis and Hirt said in a written statement. They noted that although the Fed’s policy is restrictive, it is not restrictive enough.
“Time will tell but the data suggest that what we call a ‘deferred landing’ is more likely than the long anticipated ‘soft landing,'” they added. “Along with our forecast for core inflation pressures to remain elevated as supply tailwinds fade, we expect this to keep the Fed cautious on cutting rates this year.”
— Darla Mercado
What to expect from the Federal Reserve on Wednesday
Central bank policymakers are expected to stay put on interest rates, keeping them at their target range of 5.25% to 5.5%. Indeed, fed funds futures trading indicates a 99% probability that rates will hold steady, per the CME FedWatch Tool.
The main event, however, will be the policy-setting Federal Open Market Committee’s statement at the conclusion of this meeting, as well as Fed Chair Jerome Powell’s 2:30 p.m. ET press conference. Traders will read into Powell’s comments to get a sense of where policymakers stand on the path for rates in 2024.
The Fed may also share details on its balance sheet, where it has been rolling off maturing Treasurys and mortgage-backed securities.
Read more from CNBC’s Jeff Cox here on what’s ahead for the Fed.
— Darla Mercado
Read the full article here
