It’s Time To Hear From the Fed
The data isn’t speaking for itself.
Plenty of really smart people think the Federal Reserve should have cut its benchmark interest rate last month.In a consumption-driven economy, better to be in front of than behind a cooling labor market, is the basic reasoning.
This is an infinitely complex system of incomprehensible total value, where even a “blowout” monthly jobs gain of 272,000 in the context of a workforce of approximately 163 million is indeed a rounding error.
It is wise to take account of as much incoming data as possible before deciding to change course, but even the noisiest data sets are signaling inflation’s boom phase is over.
The Fed’s efforts so far are having measurable effects, and lingering price pressures are the result of factors too far beyond the reach of its policy tools.
And, yet, the overwhelming weight of the available evidence suggests the Federal Open Market Committee won’t get moving today.
That’s the base-case scenario, whatever the 8:30 a.m. ET release of Consumer Price Index data for May reveals.
The FactSet-compiled consensus expectation is for a 0.1 percent month-over-month rise in the CPI, down from 0.3 percent in April, and a 3.4 percent year-over-year rise, consistent with last month.
The consensus expects to see a core CPI print of 0.3 percent month over month, consistent with April, and 3.5 percent year over year, easing from 3.6 percent last month.
Whatever they may be, the numbers are likely to cause a lot of price action.
September 18 is 50-50 right now, November 7 more like 60-40. And there’s a better than 80 percent chance the Fed will cut in December.
Major equity indexes were generally higher and bond yields were generally lower, price action reflecting a “risk on” attitude ahead of what investors, traders, and speculators expect will be cooler inflation data and a more dovish Fed.
Apple $AAPL stood out during a day otherwise notable for a steep slide for financial services names including JPMorgan Chase & Co. $JPM, which was down 2.63 percent, and American Express $AXP, which was down 3.02 percent.
The iPhone maker was not trading on potential central bank policy moves.
The release of an updated “dot-plot” of the interest-rate policy forecasts of each of the 19 top policymakers has generated some excitement; it only happens four times a year.
Likewise, Fed Chair Jerome Powell will host a post-meeting press conference Wednesday at 2:30 p.m. ET that will surely create some interesting price action.
My curiosity is about his and his colleagues’ views of the US employment situation and the potential negative impact of interest-rate policy divergence between and among central banks.
My guess is by the time the closing bell rings today we’ll still be looking forward to more incoming data.
