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Fed will raise raise rates next week but Powell may matter most


Jerome Powell, Chairman of the Federal Reserve, speaks during a press conference after a meeting of Federal Open Market Committee on May 4, 2022, in Washington DC. Powell said that the Federal Reserve would raise interest rates half a point to fight record-high inflation. 

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It could all boil down to the words of Federal Reserve Chairman Jerome Powell on Wednesday afternoon at 2:30 pm.

Following the two-day central bank meeting, Powell briefs journalists. It is expected that the Fed will increase its Fed funds target rate range by half of a percentage point. hot May inflation dataThe Fed’s recent rate increases have caused markets to be nervous.

At 2 p.m., the Fed will publish new economic and interest-rate forecasts. ET. It’s what Powell has to say about the summer and autumn rates hikes that can help determine how turbulent markets will be. Investor fears of inflation not peaking have caused volatility in stocks and bonds. the Fed’s rate hikes could cause a recession.

Michael Schumacher from Wells Fargo’s macro strategy, stated that “I believe really, the most important thing is Powell talking about and whether he gives any guidance for September.” “If he did, it would be only if Powell was going for hawkishness, otherwise it will come across as being dovish.

Schumacher indicated that the fed funds futures were reflecting Wednesday’s 56 basis point increase. One basis point is 0.01 percent.

Stocks plunged following Friday’s hotter than expected consumer price index for May. This week the S&P 500It was 5.1% lower. Friday’s index was at 3,900, with a 2.9% decline on the day.

Lori Calvasina of RBC Capital Markets’ U.S. equity strategy stated that, “The market demands clear and convincing proof” that the Fed is capable of pulling this off. The economic data will be the guide for the market, she said. You might be stuck for a while in purgatory.

Markets already priced in concerns about high inflation and fears of recession on Friday, which was why the inflation report came as a surprise. CPI rose 8.6% over the previous year. This is much higher than what economists polled by Dow Jones expected to be 8.3%.

This also fueled the discussion about whether or not the Fed would consider a 75-basis-point rate increase and maintain a faster rate of rate increases. Barclays and Jefferies updated their Friday forecasts to reflect a 75-basis point hike on Wednesday. However, other economists expect only a half-point.

Goldman Sachs economists revised Friday their forecast to include half-point increases in September and Wednesday, as well as a one-point rise in July.

JP Morgan economists believe that Fed officials will release new interest rate projections reflecting a quicker pace of tightening. However, they see an increase of half a point Wednesday. The median Fed forecast for interest rates is expected to show the Fed funds rate at 2.625% by year’s end. This will be well ahead of the forecast of 1.875% from March.

Powell stated that he wanted to help people understand their expectations and not surprise them. “The course appears set for a 50bp rise next week, with little desire for upside surprises,” JP Morgan economists stated.

Calvasina of RBC stated that she awaits Powell’s comment and is not expecting any unexpected outcomes from the meeting. She stated that she is encouraged by the fact that Fed officials are willing to lift rates faster in early 2013, and have more flexibility for later.

“I believe that the markets work like this. She said that it shows that they are not operating on autopilot. It demonstrates that they aren’t trying to cause too much economic damage. “I would love to hear more comment about that flexibility.”

The Fed is not the only important economic report next week. There will also be the Producer Price Index on Tuesday and Retail Sales Wednesday. Housing starts on Thursday. Industrial production Friday. These four reports are all for May.

Just a handful are earnings including Oracle Monday.

Recession warning

After the inflation report, Treasury yields increased in the bond market but the yield curve flattened. This means that shorter duration yields like the 2-year rose more than longer duration yields like the 10-year.

Friday will be 2-year Treasury yieldIt reached 3.06% and spread only 10 basis point. The spread was only 10 basis points. 10-year yieldIf the curve were inverted it would indicate a recession sign.

Calvasina stated that the stock market is currently pricing in a very shallow recession. The S&P 500 has declined an average 32% in more traditional recessions, and in this cycle it has been down nearly 20%.

According to the strategist, there is a 60% chance that the market will have reached a bottom. She stated that valuations are now reasonable enough to be able to go on a shopping list to purchase the names you want to.

The Fed is still a major challenge for stock investors. However, small caps could be an area that has been sufficiently beaten down.

She stated that she believes there is a lot of thirst and hunger out there to find valuation opportunities. Small caps are as good as any other option.

Week ahead calendar


Earnings: Oracle


FOMC begins two-day meeting

NFIB survey of small businesses at 6 a.m.

PPI at 8:30 a.m.


Earnings: John Wiley

9:00 a.m.

8:30 a.m. 8:15 a.m.

8:30 a.m. Empire state manufacturing

10:00 AM Business inventories

10:00 a.m. NAHB home builder survey

Statement and projections of the Fed at 2:00 PM

At 2:30 PM, Jerome Powell, Chairman of the Fed briefs media

4:00 p.m. TIC information


Earnings: Adobe, Kroger,Jabil and Commercial Metals

8:30 a.m. 8:30 a.m.

8:50 a.m. Housing begins

9:00 a.m. Philadelphia Fed Manufacturing

8.30 a.m. Leaders in business survey


8:30 a.m. Jerome Powell, Fed Chairman welcomes comments at conference about international roles for U.S. Dollar

9:15 a.m. Industrial production