Wall Street is getting a double dose of economic news on Wednesday, thanks to a rare calendar overlap of the Fed's policy meeting and the release of the Consumer Price Index. This is like the econ nerd version of Mercury in retrograde during a solar eclipse. Or something like that.
Anyway, here's what to expect: The CPI comes out just hours before the Fed announces its monetary policy update.
Most likely, the morning inflation reading won't sway Fed policymakers one way or another — they are widely expected to keep rates unchanged, given the strength in the labor and inflation staying stubbornly above 3%.
Markets have priced in their expectations, so don't expect a major surge or selloff.
"The things that could drive volatility higher would be if Chair Powell was to say something unexpected; I think that is of a very low probability," wrote Dave Sekera, chief US market strategist at Morningstar, in a Monday note.
While it may not weigh on tomorrow's policy decision, the CPI data will still help guide the Fed's decisions during the second half of the year. Will we get rate cuts? Will we hold steady? It all depends on inflation.
Prices are cooling after some bumps in the road earlier this year. There are also signs that Americans are spending less, which should help take the heat off inflation even more. The April CPI came in at 3.4% — too high for the Fed, which is targeting 2%, but far better than the 9% peak of two years ago.
Meanwhile, Wall Street types will be parsing the closely watched "dot plot" —literally just a boring chart with dots showing where Fed officials expect rates to head in the future, and, importantly, how many times it expects to cut rates in 2024.
Earlier in the year, if you'd have told investors that they'd be waiting till well past June for a rate cut you would have witnessed an epic temper tantrum. Wall Street is salivating, and the central bank has stuck to its forecast for three rate cuts this year — though all of that could change tomorrow.
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