The US Federal Open Market Committee meeting comes to an end Wednesday, concluding with Chairman Powell's announcement on the latest Fed fund rate decision.
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The Fed fund futures forward curve is indicating no rate change until the end of the June meeting.
The Barchart Brief: Your FREE insider update on the biggest news stories and investing trends, delivered midday Meanwhile, US stock indexes are showing technical signs of moving into long-term downtrends.
My guess is most of you have had fun at a Thirsty Thursday event sometime in your life, and some of you may have been in New Orleans for the last day of Mardi Gras known as Fat Tuesday. This morning, as we grab our next cup of coffee and possibly a croissant, we’ll settle in for another Fed Wednesday. Later this afternoon, the 2-day US Federal Open Market Committee meeting comes to an end, concluding with Chairman Jerome Powell announcing the latest Fed fund rate decision. As usual, the FOMC has done a good job of front-running this month’s announcement, cooling some of the volatility others so desperately want in all things political and economic. The announcement is scheduled for 14:00 (ET). This time around, Mr. Powell and other Fed governors have talked about wanting “clarity” on the US economy before making the next move. I applaud them for this view and also wish them luck. As for the market, the Fed fund futures forward curve continues to indicate no change in rates until the June meeting when a 25-basis point cut is expected, at least for now. In other news, the US dollar index is stronger pre-dawn while US stock index futures are also in the green following Tuesday's lower close.
What is the market telling us about expected interest rate changes?
Heading into Wednesday’s session, the Fed fund futures forward curve shows:
- The nearby March futures contract (ZQH25) was priced at 95.67, putting the expected Fed fund rate at 4.33% (100% – futures price)
- Comfortably within the Fed’s target rate range between 4.5% and 4.25% (red dashed line)
- Meaning the market is indicating no change is expected in today’s announcement
Additionally:
- The April futures contract is also priced this morning at 95.67.
- The May contract is priced at 95.705, dropping the expected rate to 4.295, still above the Fed’s low end.
- The June contract is priced at 95.765, indicating an expected rate of 4.235
- Indicating the next rate cut could come at the conclusion of the June meeting (17th and 18th)
What about further down the road?
- If we assume a 25-basis point cut in June, the Fed's expected range would drop to between 4.0% (dotted red line) and 4.25%
- The October futures contract is priced Wednesday morning at 96.08, putting the projected rate at 3.92%
- Indicating another rate cut is possible at the end of the October meeting (28 and 29)
- The September futures contract is priced this morning at 95.99, putting the expected rate at 4.01%
Keep in mind the three major US stock indexes, most notably the S&P 500 (($INX), are showing technical signs of moving to major (long-term) downtrends. Based on the theory of economic business cycles, this would indicate US interest rates should start going up again. This might not be as crazy of an idea as some make it out to be given trade wars and tariffs tend to create inflation, and the first defense against rising prices is higher interest rates.
