- The Fed's July policy meeting is set to be a pivotal moment for markets, with expectations of holding rates steady while signaling a potential rate cut in September.
- Recent data showing cooling inflation and a weakening labor market support the case for easing monetary policy in the near future.
- As the Fed navigates these challenges, its communication will be critical in shaping market expectations and guiding investor sentiment.
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The Federal Reserve will reveal its latest policy decision later today and the stakes are high. As of now, no action by the central bank is seen as the most likely outcome.
Source: Investing.com
Commentary from Fed Chair Jerome Powell could help sway market sentiment as market participants believe the prospect of a rate cut in September has become more probable following a recent batch of favorable inflation data, coupled with signs of a slowing labor market.
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Fed Set to Hold Steady in July
The Fed is anticipated to leave its Fed funds target range unchanged between 5.25% and 5.50%, where it has been since July 2023.
Source: Investing.com
This decision aligns with the U.S. central bank's cautious approach, reflecting growing confidence in the progress made on inflation while remaining vigilant about labor market conditions.
Setting the Stage for a September Rate Cut
While the Fed is all but certain to hold rates steady in July, the communication from FOMC officials and Fed Chair Jerome Powell will likely foreshadow a potential rate cut in September.
The FOMC is expected to revise its statement to reflect the improvements in inflation conditions and acknowledge rising risks in the labor market. This revision will likely hint that a rate cut in September has become more likely.
All eyes will then turn to Chairman Powell, who will hold a closely watched press conference at 2:30 PM ET as investors look for fresh clues on how he views the economy and inflation trends.
Powell is expected to emphasize increased confidence in achieving the Fed's inflation goals, highlighting significant progress in combating inflation.
At the same time, Powell's remarks on the weakening labor market will be key, as he is likely to stress that the Fed remains data-dependent and will adjust its policy accordingly.
The unemployment rate has been inching higher, reaching 4.1% in June, up 0.1 percentage points for three consecutive months. This trend indicates rising slack in the labor market and declining job growth, adding weight to the argument for a rate cut.
Source: Investing.com
As inflation cools and labor market conditions deteriorate, the central bank appears poised to pivot towards a more accommodative stance.
Mark your calendars for September 18, as it could be the day the Fed announces its first rate cut since the onset of the COVID-19 pandemic in March 2020.
What To Do Now:
Any indications or shifts in the Fed's tone during the meeting could trigger significant market movements and investor sentiments. A rate cut in September would mark a significant shift in the Fed's policy stance, which has been focused on combating inflation through aggressive rate hikes over the past two years.
Taking that into consideration, market participants are advised to remain vigilant, exercise caution, and diversify portfolios to hedge against potential market fluctuations.
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Not surprisingly, some of the notable names to make the list include Berkshire Hathaway (NYSE:BRKa), American Express (NYSE:AXP), Caterpillar (NYSE:CAT), ServiceNow (NYSE:NOW), Vertex Pharmaceuticals (NASDAQ:VRTX), TJX Companies (NYSE:TJX), Stryker (NYSE:SYK), EOG Resources (NYSE:EOG), United Rentals (NYSE:URI), and Progressive (NYSE:PGR) to name a few.
Source: InvestingPro
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (NASDAQ:QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.