NEW YORK: The Federal Open Market Committee meeting next week is shaping up as a pivotal one for Wall Street, with stocks primed for a selloff should the Fed fail to take an even more dovish tilt after policymakers raised expectations for a rate cut in recent weeks.
Bank of America Merrill Lynch Chief Economist Michelle Meyer expects the Fed's"dot plots" projection of interest rates, which represents the anonymous, individual rate projections of Fed policymakers for the next few years, to shift lower as officials start to factor in cuts. However,"the median dot will signal a Fed on hold," Meyer said in a note.
Many investors had been looking toward the Group of 20 summit later this month for more definitive signs of the direction of trade talks between the United States and China, giving the Fed a clearer picture on whether to take action on rates at the July meeting. According to CME's FedWatch tool, money market traders are pricing in an 88.4per cent chance of a rate cut of at least a quarter of a percentage point in July.
"There were some important prints that confirmed some of the Fed’s fears – we didn’t get PCE but in PPI and CPI, you are not seeing inflation pressure bleeding through," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.