Last week, markets traded mainly range bound as economic data and corporate earnings met expectations. In the week ahead, market participants will be closely watching for any clues from the Federal Open Market Committee (FOMC) statement on Wednesday. The Federal Reserve (Fed) is widely expected to keep interest rates unchanged, but the meeting could provide important information on future policy.
With future monetary policy in focus, investors will be looking for any update on the intermediate-term outlook for inflation and details on plans for shrinking the Fed's balance sheet. I expect the Fed to reaffirm that inflation will increase to its desired level in the intermediate term despite it being below the 2% target currently. I will also be watching to see if the Fed makes any statements around the increase in asset prices, as several Fed officials have indicated growing concerns with asset price inflation.
On Friday, the Commerce Department will release second quarter GDP. Improving consumer spending is expected to push GDP to 2.6%. Unless GDP is materially different than anticipated, I don't expect any significant market reaction.
I remain cautiously bullish on stocks and modestly bearish on fixed income. I don't expect a catalyst to move markets significantly until later in the year.
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