Fed’s announcement in June: The talk of the town today — and for the foreseeable future, unfortunately — will be the Fed’s steps to curb inflation. With stocks selling off like crazy in the last week and hitting levels not seen since early 2021, it has many investors wondering how reactive the Fed will be to the recent price action. To help grapple with it all, we posed this question to several industry experts:
WHAT CAN WE EXPECT FROM THE FED?
“The stock market is under downward pressure as it prices in the risk of a recession and uncertainty over the number of rate hikes needed to cool our red hot inflationary environment. As a Mom, I know firsthand that the supply chain shocks exacerbating things like baby formula are creating extremely negative consumer sentiment. Indeed, as we saw last Friday, consumer sentiment came at a record low, driven by inflation. Powell is now savvy with the press (after an initial bumpy start) and likes to soothe the stock market. While he was late to begin acting on inflation, I believe he will be reassuring in his comments and look to calm our current fear-based environment.” — Elle Kaplan, CEO of LexION Capital
“I don’t think that the last two days change anything action-wise in what the Fed does at this meeting. However, I do think it may change their wording to be open to more tightening in a faster fashion if needed. I think the most interesting part of their comments will be how they think the recent market action affects employment. As we have seen over the last few weeks, there has been a small weakness in employment. But does that continue to spread, and if it does, how can they help to steady it? The two areas of the economy that have yet to be hit and both seem very vulnerable right now are employment and housing.” — JJ Kinahan, Chief Market Strategist and VP at tastytrade
“I’m still anticipating a 50 basis-point increase, especially given Monday’s sell-off, but I do think the stage is set for larger and faster rate hikes in the near future. I think we could also see a more aggressive tone in Wednesday’s comments, after the May report was less-hawkish sounding than investors were expecting.” — Christine Short, VP of Research at Wall Street Horizon
“As a technical analyst, our focus is more on the market’s lead-up and reaction, more than what the FOMC does or does not do. Judging from the past three days, markets appear set to decline into the statement, which could very well set up the “sell on the rumor, buy on the news” outcome.” — Christian Tharp, CMT, at The Chartist Academy
Analysts’ attention will be drawn to the trend in yields — which have seen remarkable fluctuation — and leading indicators to assess the efficiency of the implemented policy. As such, the Leading Economic Indicator (LEI) will be another indicator to be closely watched. — Toni Nasr, CFA, FRM, Fintech Analyst at Investing in the Web.