Could the Fed raise rates again in June?

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Will the Federal Reserve raise interest rates at its next meeting in June – for the 11th time in a row – or will it take a break? Wall Street seems to be betting on the latter, but it was a topsy-turvy trip to that consensus last week.

What happened: The Fed’s meeting earlier this month fueled hopes that this will come with rate hikes, at least for now. SO, a list of economic data last week came in stronger than expected.

Retail spending rebounded in April after two months of decline, suggesting that consumers are continuing to spend despite the tightening of their purse strings. Jobless claims fell more than expected for the week ended May 13, remaining below historical averages.

Traders saw about a 36% chance last Thursday of the Fed raising rates another quarter point in June, up from about 15.5% on May 12, according to the CME FedWatch Tool.

Then Fed Chairman Jerome Powell weighed in mid-morning Friday. In a panel with former Fed chief Ben Bernanke, Powell said uncertainty remains about falling demand due to tighter credit conditions and the lagged effects of rising rates. Traders reduced their expectations to around an 18.6% chance of the central bank raising rates next month, starting Friday evening.

Experts seem to agree that the Fed is unlikely to raise rates in June. “The lack of such preparation (for a hike) is the signal and gives us additional confidence that the Fed will not hike in June absent a very big surprise in the remaining data, although we should expect a hawkish pause,” Evercore ISI strategists said in a May 19 memo.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, also expects the Fed to hold rates steady in June. But that decision isn’t set in stone, and the Fed will likely watch three key factors in making its decision, he said. These are:

  • The debt ceiling. President Joe Biden and congressional leaders have argued that the United States is unlikely to default on its debt. But if such a scenario were to occur, it could have catastrophic consequences for the economy and the financial markets which would force the Fed to wait for the resolution of the crisis before acting.
  • Changing financial conditions. The bankruptcies of regional lenders Silicon Valley Bank, Signature Bank and First Republic accelerated the tightening of credit conditions. While this has complicated the Fed’s plan to stabilize prices, it could also benefit the central bank by doing some of its work for it by slowing spending.
  • Delayed impact. Fed interest rate hikes pass through the economy with a lag. It will therefore take a few months for the full effect of its aggressive tightening cycle to manifest itself in the economy. This means the Fed might want to pause to monitor the continued impact of what it has already done.

The Fed has also maintained that its actions are data-driven, meaning it will closely monitor incoming economic data before announcing its next rate decision on June 14.

Some key data points slated for release before then include April’s Personal Consumption Expenditures Price Index (this is the Fed’s preferred measure of inflation), the May jobs report, the consumer price index for May and the producer price index for May. (The final two reports are due for the Fed’s two-day meeting.)

If these data points show a significant weakening in the labor market or a continued decline in inflation, that helps argue for a pause. But signs of a robust economy with little or no signs of slowing could mean the Fed has more room to tighten – and it could seize the opportunity.

Morgan Stanley chief executive James Gorman, 64, will step down within the next 12 months, he said at the bank’s annual meeting on Friday.

“The precise timing of the CEO transition has not been determined, but the Board and I expect it to occur at some point over the next 12 months. current expectation absent a major change in the external environment,” Gorman said.

Gorman, who is one of the longest-serving executives at a U.S. bank and largely responsible for the company’s sweeping transformation after the 2008 financial crisis, became CEO in January 2010.

He will assume the role of executive chairman for “a period of time,” Gorman said, adding that the board has three senior internal nominees on the line to potentially take over as the next chief executive.

Learn more here.

The “X date” of June 1 – the estimated time when the US Treasury could run out of cash – is fast approaching. For JPMorgan Chase’s Jamie Dimon, another key date is already here.

The chief executive told Bloomberg earlier this month that he held a so-called weekly “war room” to prepare the bank for the possibility of the United States defaulting on its debt. He plans to meet more often as Date X approaches and then meet daily by May 21, he said, adding that meetings will eventually ramp up to take place three times a day.

“I don’t think (a fault) is going to happen, because it becomes catastrophic,” Dimon said. “The closer you get to it, the more you’ll panic.”

Debt ceiling negotiations appeared to be moving in a positive direction for most of the past week. President Joe Biden and House Speaker Kevin McCarthy said the United States was unlikely to default on debt and appeared optimistic about the path to a deal.

But debt ceiling talks between the White House and McCarthy’s office hit a snag and negotiators broke off talks, multiple sources told CNN on Friday.

While this doesn’t mean negotiations are completely collapsing or the country is headed for default, it poses more challenges for the stock market, which has remained relatively resilient despite concerns about the debt ceiling starting to rise. settle in slowly.

Dimon said in the same Bloomberg interview that he “would love to get rid of the debt ceiling altogether.”

The debt ceiling situation “is very unfortunate,” he said. “It should never be like this.”

Monday: JPMorgan Chase Investor Day.

Tuesday: Sales of new homes in April. Earnings from Lowe’s (LOW).

Wednesday: Minutes from the May Fed meeting.

THURSDAY: Second reading of first quarter GDP, April pending home sales, mortgage rates and weekly jobless claims. Earnings from Costco (COST), Dollar Tree (DLTR) and Best Buy (BBY).

Friday: Personal consumption expenditure for April and the final reading of consumer sentiment from the University of Michigan in May.


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