Wall Street is eagerly awaiting both the June Federal Open Market Committee (FOMC) meeting as well as the May Consumer Price Index (CPI) inflation report, both due Wednesday, June 12. Will the stock market crash?
Well, likely no. Investors have largely tempered their expectations for both the policy decision and the inflation report, meaning markets shouldn’t get too volatile one way or the other, absent some surprise development.
Indeed, the importance of the FOMC meeting doesn’t lie in the actual rate-hike decision but in Federal Reserve Chairman Jerome Powell’s tone in the speech following the policy decision. Wall Street is already well aware that the central bank isn’t likely to cut rates this time around.
If you recall, Powell raised hopes for three or more rate cuts to come in 2024. However, six months into the year, interest rates are just as high. Wall Street has been chomping at the bit for rate reductions, but stubborn inflation and a relatively tight labor market have given the Fed plenty of leeway to keep holding rates at their current restrictive level.
This has put additional weight on this week’s CPI, which releases just hours before the policy meeting. This time around, economists are expecting inflation to ease substantially, largely due to falling gas and oil prices.
Indeed, the CPI is projected to climb about 0.1% in May, a notable slowdown from April’s 0.3% increase. This should put year-over-year (YOY) inflation at 3.4%, the same as in April.
What Does the CPI, FOMC Meeting Mean for a Stock Market Crash?
Should forecasts prove accurate, expect Powell to at the very least acknowledge the improvement and potentially confirm rate cuts to come later this year. As it stands, traders are holding out hopes for the first (and potentially only) rate cut of the year to come in September.
“We anticipate the report to provide additional evidence that inflation is returning to a cooling trend after flaring up in Q1,” noted Wells Fargo economists.
With investors’ expectations well-anchored, the markets should hold steadfast on Tuesday, assuming there isn’t either a drastic inflation beat and/or that Powell takes an especially pessimistic tone toward inflation progress.
While neither of these possibilities are too unlikely, they also certainly aren’t the base case heading into Wednesday.
Despite elevated interest rates and pesky inflation, the stock market has performed exceptionally well this year. Indeed, the S&P 500 is up 13% year-to-date (YTD) while the tech-heavy Nasdaq Composite is up more than 16% after only six months in 2024.
While investors do tend to be sensitive to macroeconomic developments, Wednesday should be fairly cut and dry — assuming Powell doesn’t opt for drama.
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.
