Wall Street is abuzz heading into the start of the Federal Reserve’s July policy meeting, which will conclude tomorrow, Wednesday, July 31. Investors are eager to hear confirmation of at least one rate cut this year following the surprisingly cool June inflation reading. Will the stock market crash?
Well, probably not.
Fed Chair Jerome Powell has kept his cards especially close to the chest this year, typically offering standard sound bytes without overly committing to one path or another. That said, this time around presents a unique opportunity for Powell to, at the very least, set the stage for a rate cut in September, assuming the bank doesn’t lower rates at this week’s meeting.
Interest rate traders are currently pricing in a roughly 95% chance the Fed opts to hold rates steady this time around, estimating just a 4% possibility of a 25 basis-point rate cut, per the CME FedWatch tool. As such, traders are fairly confident in the Fed’s actual policy decision this week.
Conversely, traders believe there’s an 89% chance of a 25 bp rate cut in September and a 10% chance of a 50 bp cut.
Stock Market Crash Fears Swirl as Fed Chair Powell Prepares to Take the Stage
Investors have counted on a September cut for the better part of this year. The June consumer price index (CPI) report only furthered these expectations, showing a surprising 0.1% drop in prices in June.
Because of this, markets may be increasingly sensitive to Powell’s commentary this week. If the Fed Chair even hints at the possibility the Fed holds rates steady in September, it may well prove bearish for stocks, which have already been on a tech-fueled slump lately.
All things considered, Fed officials have plenty to be optimistic about. Prices are clearly heading down, consumer spending — the engine of the economy — has held strong despite inflation and interest rate-related headwinds, GDP growth remains steadfast, and recession concerns have mostly disappeared from market sentiment.
That isn’t to say the country is completely out of the woods yet, but that the Fed’s “higher for longer” strategy may have proven just the medicine the economy needed.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
