June Fed Meeting Preview: Markets Expect Another Big Rate ...

At the June 2022 FOMC meeting, there is a widespread expectation that the Fed will deliver another 50 basis point rate increase. SelectRegion UnitedStates UnitedKingdom Germany India Youmightbeusinganunsupportedoroutdatedbrowser.TogetthebestpossibleexperiencepleaseusethelatestversionofChrome,Firefox,Safari,orMicrosoftEdgetoviewthiswebsite. advisor Investing AdvertiserDisclosure JuneFedMeetingPreview:MarketsExpectAnotherBigRateHike WayneDugganContributorFactCheckedBenjaminCurryeditorFactCheckedUpdated:Jun7,2022,9:59am EditorialNote:WeearnacommissionfrompartnerlinksonForbesAdvisor.Commissionsdonotaffectoureditors'opinionsorevaluations. Getty InvestorsexpecttheFederalOpenMarketCommittee(FOMC)tocontinueitsaggressiveapproachtomonetarypolicytighteningattheupcomingmeetingonJune14-15. TheFederalReservewilllikelydeliveritssecondconsecutive50basispoint(bps)interestratehikeandcontinuetorolloffassetsfromitsnearly$9trillionbalancesheet.ThelasttimetheFedmadetwo50bpsinterestratehikes(non-consecutive)wasinmid1994. TheFedhasbeenwalkingatightropeinrecentmonths,attemptingtobringdowninflationlevelsfrommulti-decadehighswithoutplungingtheU.S.economyintoarecession.TheS&P500isdown13.6%yeartodateongrowingconcernsthattheFedwillnotachievea“softlanding”fortheeconomy. Fortunately,thelatestroundofeconomicdatashowsthattheFOMC’stighteningmeasuresuptothispointhaven’tstalledU.S.economicgrowth,andthereareevensomepositivesignsthatinflationmayfinallyhavepeaked. GreatExpectationsfortheFOMC AccordingtoCMEGroup,marketsarecurrentlypricingina95%chanceofanother50bpsratehikethismonth.IftheFOMCpullsthetriggeronanother50bpsraise,itsfederalfundsratetargetratewillbebetween1.25%and1.50%. TheFedisalsoexpectedtosticktoitspreviouslydisclosedplantoallowupto$30billioninTreasurysecuritiesand$17.5billioninagencymortgage-backedsecurities(MBS)tomatureandrolloffitsbalancesheetpermonthstartinginJune. Thecentralbankhassaidthatmonthlybalancesheetreductionwillrampto$60billioninTreasurysand$35billioninMBSpermonthstartinginSeptember. Inaddition,theJunemeetingwillseeafreshupdatetotheFed’slong-termU.S.economicprojections,includingits“dotplot”outlookforinterestrates.InMarch,fiveoutof16FOMCparticipantsprojectedthefederalfundstargetratewouldexceed3%in2023.FedeconomistswereprojectingU.S.GDPgrowthof2.8%in2022and2.2%in2023. InvestorswillbewatchingcloselyforanypotentialchangestotheFed’slong-terminflationprojections.InMarch,FedeconomistsforecastedthatthePersonalConsumptionExpenditures(PCE)priceindexwouldrise4.3%in2022butonly2.7%in2023asinflationsubsides. EconomicGrowthRemainsSteady—forNow Sofar,theFederalReservehasavoidedasharpU.S.economicdownturn,andtherearenosignsaneconomicrecessionisimminentatthispoint. OnJune3,theU.S.LaborDepartmentreportedtheeconomyadded390,000jobsinMay,exceedingeconomistexpectationsof325,000jobs.TheU.S.unemploymentrateremainedstableat3.6%,whilethelaborparticipationratetickedhigherby10basispointsto62.3%.AverageU.S.wageswereup5.2%fromayearagoand0.3%monthovermonthinApril. Unfortunately,thesolidmacroeconomicdatahasbeensomewhatunderminedbynewsofhiringfreezesandlayoffsatsomeofthehighest-profileU.S.techcompanies. Tesla(TSLA)CEOElonMuskrecentlysaidhehasa“superbadfeeling”abouttheeconomyandplanstoreduceTesla’sworkforceby10%.Apple(AAPL),Twitter(TWTR),Microsoft(MSFT),Nvidia(NVDA),Netflix(NFLX)andCoinbase(COIN)arejustafewnamesonthegrowinglistofcompaniesthathaveannouncedtheyareslowingorsuspendinghiringorreducingtheirworkforces. QuincyKrosby,chiefequitystrategistforLPLFinancial,saysthemixedeconomicsignalscontributetomarketvolatility. “AsFedspeakersconsistentlyremindusthatthepathtowardsdraininginflationarypressuresfromtheeconomyisgoingtobe‘bumpy’and‘painful,’themarketagreesasitnavigatesbetweenseeingthenextrecessionaroundthecornertowitnessingastillhealthyeconomicbackdrop,”saysKrosby. “Moretalkofhiringfreezesandlayoffsinthewell-payingtechsectorcould,atsomepoint,convincetheFedthatinflationiseasing,especiallyiflayoffsbroadenbeyondthegildedtechworld,”headds. IsInflationPeaking? TheFedstillhasalongwaytogotobringinflationlevelsbackinlinewithitslong-termtargetof2%,butinvestorshavegottensomepositivesignsinrecentweeksthattheworstoftheinflationcrisismayfinallybeover. InlateMay,theCommerceDepartmentreportedthecorePCEpriceindex,theFed’spreferredinflationgauge,wasup4.9%inApril,aslightreductionfromthe5.2%gainreportedinMarch.ThecorePCEinflationnumberexcludesvolatileenergyandfoodprices. BradMcMillan,chiefinvestmentofficerforCommonwealthFinancialNetwork,saystheU.S.economyshouldcontinueonitspositivetrajectoryinJune,whichwillreassuretheFedthatitcancontinuetocombatinflationaggressively. “Theprimaryheadwindstotheeconomyandthemarkets—inflationandrisinginterestrates—seemtobepullingbackabit.Inflationisshowingsignsofstartingtorollover,andtheFedisindicatingthatthemarkethasgottenaheadofitselfonitsexpectedrateincreases,”McMillansays. Unfortunately,CommonwealthFinancialNetworkheadofportfoliomanagementPeterEsselesaysrecentmarketactionsuggestsinvestorsstillseearealrisktheFedcouldderailtheeconomy. “Thesecondhalfof2022isgoingtobearollercoasterrideforinvestorsunlesstheFedisabletobringinflationundercontrolwithoutahardlanding,”Esselesays.“Mostinvestorsseemtobewageringonacrash-and-burnscenarioatthispointasrecessionaryfearsaboundandequitymarketsfailtodevelopanysortofpositivemomentum.” FedspeakOffersHints SeveralFedmembershavehintedatwhatinvestorsshouldexpectfromtheJunemeeting. FedvicechairLaelBrainardsaidtwomore50basispointhikesare“areasonablekindofpath.” ClevelandFedpresidentLorettaMestersaidadditional50basispointhikesmaybeappropriateuntilshesees“compellingevidencethatinflationisonthedownwardtrajectory.” FedgovernorChristopherWallersaidheisnottaking50basispointhikesoffthetableuntilinflationcomes“downclosertoour2%target.” TheFOMCwillgetonemoreimportanteconomicdatapointbeforeitsJune14meetingwhentheLaborDepartmentreportsitsMayConsumerPriceIndex(CPI)inflationreadingonJune10. FederalOpenMarketCommitteeFAQs WhatIstheFOMC? TheFOMCistheFederalReserve’smonetarypolicycommittee.Itdeterminesthedirectionofmonetarypolicybysettinginterestratesanddirectingopenmarketoperations.Thecommitteehas12membersandmeetseighttimesayeartoexaminetheU.S.economyandvoteonwhethertoalterthefedfundstargetrateorchangethewayopenmarketoperationsareconducted. WhoAretheMembersoftheFOMC? The12membersoftheFOMCincludeFederalReserveChairJeromePowell;theothersixmembersoftheFederalReserveBoardofGovernors(whichisledbytheFedChair);thepresidentoftheFederalReserveBankofNewYork;andfouroftheremaining11regionalFederalReserveBankpresidents,whoserveone-yeartermsonarotatingbasis. WhatDoestheFOMCDo? TheFOMCconductsopenmarketoperationstoguidemonetarypolicy,andincreaseorreducethemoneysupplyintheU.S.economy.TheFedbuysandsellsgovernmentsecuritiesonaday-by-daybasistocontrolthemoneysupply,setbankreserverequirementsandadjusttheFeddiscountrate.TheFed’sBoardofGovernorshandlesreserverequirementsandthediscountrate,whiletheFOMCconductstheopenmarketoperations. WhenIstheNextFOMCMeeting? TheFOMCmeetseighttimesayear,holdingameetingonceeverysixweeks.ThecommitteecanmeetonanemergencybasisifeconomiceventsgetoutofhandandtheFedbelievesitneedstoactbeforethenextscheduledmeeting.HerearethedatesofupcomingscheduledFedmeetings: Dec14-15,2021 Jan25-26,2022 March15-16,2022 May3-4,2022 June14-15,2022 July26-27,2022 Sept20-21,2022 Nov1-2,2022 Dec13-14,2022 Wasthisarticlehelpful? Shareyourfeedback Sendfeedbacktotheeditorialteam RatethisArticle ★ ★ ★ ★ ★ Pleaseratethearticle Email Pleaseentervalidemailaddress Comments We'dlovetohearfromyou,pleaseenteryourcomments. Invalidemailaddress Submit ThankYouforyourfeedback! Somethingwentwrong.Pleasetryagainlater. BestOfs BestInvestmentApps BestRobo-Advisors BestCryptoExchanges BestStocksToBuy BestOnlineBrokers BestMoneyMarketMutualFunds BestInvestmentPortfolioManagementApps BestLow-RiskInvestments BestFixedIncomeInvestments Basics WhatIsInvesting? WhatIsABrokerageAccount? WhatIsABond? WhatIstheP/ERatio? WhatIsLeverage? WhatIsCryptocurrency? 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