Investors await the Federal Reserve’s meeting, which is set to begin Tuesday and conclude with an interest rate decision and press conference on Wednesday.
The Fed is expected to leave interest rates unchanged, but the accompanying statement and Fed Chair Jerome Powell's post-meeting press conference may shed additional light on the future outlook for rates.
The Fed is also expected to send the following message to markets - continue squeezing inflation with high-interest rates until prices remain under control.
Recent economic data has tamped expectations of a near-term rate cut, with the central bank now likely to leave rates unchanged until September at least.
The latest macro data showed inflation in the U.S. remains sticky. The U.S. consumer price index (CPI) rose 0.4% month-on-month (MoM) and 3.5% year-on-year (YoY), above Wall Street expectations of 0.3% MoM and 3.4% YoY, according to data released by the Labor Department's Bureau of Labor Statistics on Wednesday.
GDP numbers showed the economy slowed significantly during the first quarter, making the situation more complex for the Federal Reserve. Growing at the slowest pace in two years, the U.S. GDP increased at 1.6% annually between January and March.
While markets are widely expecting interest rates to remain unchanged, traders will closely watch for policy guidance from the central bank. At the top of investors’ minds are questions about how many rate cuts will take place this year and when they might begin.
Earlier this year, Fed officials projected they would cut interest rates as inflation cooled. Financial markets had expected those cuts to begin in June. However, after three consecutive months of above-expected inflation reports, traders are now pricing in September as the earliest month for the first cut, according to the CME Group’s FedWatch tool.
Still, with the economy booming and unemployment low, there is little pressure on the Fed to cut rates to stimulate the economy and prevent a recession, and much pressure to keep them high in order to quell inflation.
The U.S. non-farm payrolls data will also be closely watched next Friday for clarity on the Fed's rate-cut projections.
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