The big news in a short week for markets is that the Federal Open Market Committee () meets on Tuesday and Wednesday to discuss the federal funds rate.
Rates have stayed the same for the past six months, since they were lowered to the 4.25% to 4.50% range in December.
There have been calls for the Fed to lower rates, with inflation rates dropping for three straight months from February to April, down near the Fed’s goal of 2% inflation. However, in May, that streak ended as the Consumer Price Index () ticked back up in May to 2.4%, from 2.3%. The inflation data will come at the end of the month, but it is also expected to rise from 2.1% in April.
That clouds the issue a bit, as members of the FOMC have said that they want to see what effects Trump administration policies will have, particularly tariffs. In May, we saw the first impact on prices, even though they were fairly minimal. In a speech delivered on June 5, Federal Reserve Governor Adriana Kugler touched on some of her concerns.
“While the labor market is currently at or near the FOMC’s goal of maximum employment, there is the prospect that trade and other policy changes could raise the unemployment rate and push employment away from our objective,” Kugler said in the June 5 speech.
“These policies, especially higher import tariffs, could also raise inflation over the rest of this year. In fact, while progress toward the FOMC’s goal of 2 percent inflation has continued, we have seen an escalation in goods inflation and data from surveys, and non-traditional sources point to some inflationary pressures as well.”
Rate Change Unlikely This Week
In her speech to the Economic Club of New York, Kugler said the greater upside risks to inflation and the potential downside risks to employment and economic output down the road lead her to support maintaining the current rate for now. The inflation rate rising in May bore those concerns out.
Investors also feel this way, as the CME FedWatch survey of interest rate traders found that 99.9% believe the Fed will keep rates the same this week, and the 0.1% that expect a change actually think the Fed will raise them by 25 basis points. No one thinks the Fed will lower rates this week.
Further, only 16.5% think the FOMC will lower rates at its July meeting. Most, about 67%, are targeting a September rate cut, with 57% calling for a 25-point cut and 10% anticipating a 50-point reduction.
The FOMC meeting is the highlight of a slow week, cut short by a day due to the federal Juneteenth holiday on Thursday.
The markets will be looking to bounce back after declining last week for the first time in three weeks. Last week, the fell 0.5% to 5.977, while the fell 1.3% to 42,198, while the dropped 0.6% to 19,407.
Other highlights this week include the report, coming out on Tuesday morning. This should lend some insight into consumer spending.
Earnings are light this week, with only a handful of larger companies reporting. Most notable are home builder Lennar (NYSE:) on Monday after the market closes, publisher Wiley on Tuesday, Korn Ferry (NYSE:) and Smith & Wesson (NASDAQ:) on Wednesday, and CarMax (NYSE:), Kroger (NYSE:), Accenture (NYSE:), and Darden Restaurants (NYSE:) on Friday.