Closing Time for Tightening?

July 24, 2023

Closing Time for Tightening? Photo

Federal Reserve (Fed) policymakers are set to meet again this week with another quarter-point rate hike widely expected.1 Despite better news on the inflation front recently and a weaker-than-expected June employment report, policymakers are likely to follow through on recent communication suggesting one more hike is necessary to keep inflation trending toward its 2% target. Futures markets are pricing in more than a 95% probability for another hike on Wednesday. Short-term interest rates are now expected to hold steady for the balance of the year. Similar to most recession forecasts, the potential for interest rate cuts by the Fed has now been pushed out into 2024.

This week’s economic calendar is highlighted by our first read on second quarter gross domestic product (GDP) on Thursday and the Fed’s favorite inflation gauge — personal consumption expenditures (PCE) — out Friday.2 Equity valuations suggest the return of the pre-COVID Goldilocks economic environment with inflation and growth running near 2%.

Some large-cap tech equity market leaders this year such as Meta, Alphabet and Microsoft are set to report earnings this week.3 These earnings announcements take on added significance after Taiwan Semiconductor suggested last week that the benefits of artificial intelligence (AI) aren’t nearly enough to offset weakness in other parts of its business.



1Yahoo! Finance – Fed Readies Another Rate Hike in Pivotal Week for Central Banks; 7/22/2023

2MarketWatch – U.S. Economic Calendar; as of 7/24/2023

3Reuters – US STOCKS-Futures edge up ahead of more Big Tech earnings, Fed decision; 7/24/2023

Tags: Federal Reserve | Rate Hike | Inflation | Interest rates | Earnings | Artificial Intelligence

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