For years, Federal Reserve decisions became something of a rubber stamp, with investors focused more on the press conference than the announcement itself. Under new Fed Chair Kevin Warsh, that dynamic has flipped, observes Bret Kenwell, US investment analyst at eToro US.
Markets see a roughly one-third chance of a rate hike today. That leaves investors with more uncertainty going into the decision, and potentially fewer answers coming out of it.
10-Year Treasury Yield (YTD Chart)
Source: TradingView
June’s cooler-than-expected CPI report appeared to take some of the urgency out of a July hike, but the recent spike in energy prices has put that risk back in play. Even a soft PCE report may offer only limited reassurance: It covers June, arrives after the Fed’s decision, and won’t capture July’s energy shock. That leaves policymakers balancing backward-looking inflation data against a fast-moving geopolitical backdrop.
A surprise hike could throw another wrench into markets at an already delicate moment. The 10-year Treasury yield is near a one-year high. Approximately one-third of S&P 500 Index (^SPX) companies are reporting earnings this week — including four of the Magnificent Seven. And the Nasdaq 100 is on the verge of correction territory.
Conversely, holding rates steady could open the door to a relief rally in stocks and crypto, but the tone will matter. A “hawkish hold” may provide little more than short-term relief.
Tuesday’s consumer confidence report came in slightly below expectations and below last month’s reading as consumers combat a bevy of increasing costs. Energy prices have rebounded significantly this month, while increasing Treasury yields continue to elevate borrowing costs. While consumer confidence has appeared to stabilize, it remains subdued.
