Investors will be closely monitoring tomorrow’s Federal Open Market Committee (FOMC) meeting and are expecting yet another no-decision on interest rates. Will the stock market crash?
Well, probably not.
Expectations are well-tempered heading into tomorrow’s crucial policy meeting. Indeed, the CME Fed Watch Tool estimates there’s just a 1.1% chance the Federal Reserve will cut interest rates tomorrow.
Reasonably so. With inflation making little progress in recent months, added to continued strength in the labor market, the Fed has no reason to ease rates down.
In fact, inflation has actually taken a turn in the wrong direction, according to the recently released March Personal Consumption Expenditure (PCE) report. The Fed-preferred inflation gauge showed prices actually increased at a rate of 2.7% year-over-year, up from February’s 2.5% inflation reading.
As a result, some economists believe the Fed may not cut rates until late summer. Some are even tossing around theories that the central bank may renege on its rate-cut promise altogether this year.
Powell Steals the Show as Stock Market Crash Fears Swirl
While most of Wall Street has little doubt about the Fed’s monetary decision, that doesn’t mean there won’t be some action at tomorrow’s FOMC meeting.
Indeed, Wall Street will be keeping a close eye on Fed Chair Jerome Powell’s language during his press conference following the rate decision.
Powell typically keeps his cards close to the vest, but there’s usually some margin to read between the lines.
In recent months, Powell has warned that the central bank is prepared for “some pain” as it opts to keep rates high in its seemingly never-ending battle with inflation.
You should expect a similar sentiment this time around, hopefully for some insight into when the Fed expects inflation to head south.
“It’s really going to be about how they’ve changed their language on the inflation outlook,” Jake Schurmeier, a portfolio manager at Harbor Capital Advisors, told Barrons. “Back in March, the message was ‘there will be some bumps in the road.’ When Powell last spoke [on April 16,] he acknowledged reality and basically said that inflation hasn’t made the progress that was expected.”
This will be the major market mover tomorrow. Depending on Powell’s tone, expect stocks to climb or sink accordingly.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
