The day of Federal Reserve The ECB's rate cut has arrived and follows less than a week later. A move that will remain isolated because the FOMC, the monetary policy committee of the US central bank, should essentially confirm the interest rate fluctuation band in the range of 5.25-5.50%. An obvious decision, even if future ones are not, which will depend on the data arriving today and in the next summer months for inflation and the labor market in implementation of the double mandate. In any case, no news is expected from the Fed before September.
What to expect from today's meeting
No action is expected at today's meeting of the Fed on interest rates, which should be confirmed in the 5.25-5.50% oscillation band. The American central bank, then, should confirm its restrictive approach (more hawk than dove) and its policy of “higher for longer” rates (taller for longer).
The FOMC, therefore, will reiterate the need to achieve the objective of reducing inflation as soon as possible, also based on the data that will be released this afternoon, and to Don't rush to cut interest ratesconfirming the new strategy of “wait and see” (stays and watches).
The labor market and inflation
The dual mandate of the Fed, as is known, requires bankers to satisfy the two conditions of full employment and price stability. Among the most observed data is therefore the job market, which surprised the market very positively last week. The “non-farm payrolls” (non-agricultural workers), in May 2024, are rose by 272 thousand units, greatly exceeding expectations of analysts who estimated an increase of 182 thousand jobs and against the 165 thousand jobs added in the month of April. The unemployment rate, however, rose slightly to 4% from the previous 3.9%.
Attention is also focused on inflation data coming out today: the May data, according to the consensus of analysts, could confirm 3.4% recorded in April, after the surge to 3.5% recorded in March, a far cry from the 3.1% recorded in January. an inflation that remains too high due to salary dynamics, which continue to influence the data.
What impact on the markets
The stock market continues to update yours historic highs, indifferent to a more prudent and wait-and-see Fed. The Nasdaq index and the S&P 500 index once again reached historic highs on the eve and continue to be driven by technology and the rally of companies such as Nvidia, the big chip maker for artificial intelligence.
On the other hand, also the bond market suffers from a wait-and-see attitude on the part of central bankers: i Treasury yields soared again last week, following the release of stronger-than-expected jobs data.
At present, markets are pricing in a greater probability of a rate cut in September and a stalemate in the June and July meetings. More uncertain a second rate cut in Novemberthe second before the end of the year, which discounts the strong employment data released last week.
“Short-term data hasn't been particularly encouraging for a rate cut by the Federal Reserve,” he explains Jason SimpsonSenior Fixed Income ETF Strategist at SPDR ETF – State Street Global Advisors, adding “the Fed's philosophy is clear: it wants to make sure inflation doesn't start rising again. Data dependency is therefore likely to be one of the topics covered in comments on the central bank's decision.”
