All eyes on another big Fed rate hike: What you need to know this week

Markets face another major rate hike next week as policymakers continue their fight against stubborn inflation.

Investors will be directed directly to Two-day Federal Reserve meeting On September 20-21as officials are expected to deliver a third consecutive increase of 75 basis points to their reference policy after discussions on Wednesday at 2:00 PM ET.

Wall Street will also take a cue Fed Chairman Jerome Powell’s speech after the event, along with U.S. central bank members’ economic forecasts and the latest dot chart showing each staff member’s forecast for the central bank’s key short-term interest rate.

US Federal Reserve Chairman Jerome Powell answers questions during a news conference in Washington, DC on May 4, 2022. (Photo by JIM WATSON/AFP via Getty Images)

US Federal Reserve Chairman Jerome Powell answers questions during a news conference in Washington, DC on May 4, 2022. (Photo by JIM WATSON/AFP via Getty Images)

“In the updated forecasts, we look for revisions towards lower growth, higher unemployment and a higher bottom rate – however we expect the inflation path to remain largely unchanged,” Bank of America analysts led by Michael Gapen wrote in a note Friday. “In our eyes, this suggests that the risks of a hard landing are increasing, although we expect the median member to forecast a soft landing.”

A look at Federal Reserve expectations could determine whether markets get relief from a recent selloff or continue sharp declines. On Friday, all three major averages recorded their worst week since June. The benchmark S&P 500 lost 4.7% in the week ended Sept. 16, the Dow Jones Industrial Average fell 4.1% and the tech-heavy Nasdaq Composite tumbled 5.5%.

Hotter-than-expected inflation data earlier this month sparked a new wave of pessimism about the U.S. central bank’s interest rate hike and its potential to significantly slow economic growth.

The Consumer Price Index (CPI) in August reflecting an 8.3 percent increase from last year and a 0.1 percent increase from the previous month, the Bureau of Labor Statistics said Tuesday. Economists had expected prices to rise 8.1 percent last year and fall 0.1 percent in the latest month, according to Bloomberg estimates.

Wall Street heavyweights including Bank of America, Goldman Sachs and Nomura have it all raised their interest rate forecasts immediately after the reading, while raising expectations for a hard landing — a sharp decline after a period of rapid growth.

Goldman Sachs warned on Thursday that the stock market could fall another 26% if the Fed’s rate hike campaign triggers a recession.

“If only a severe recession — and a tougher Fed response to achieve it — will tame inflation, then the downside to both stocks and Treasuries could still be significant, even after the damage we’ve already seen.” Goldman said.

Elsewhere next week, a set of housing data will be ready, with figures for building permits, new housing starts and sales of existing homes closely watched. Releases will come after that mortgage rates jumped over 6% last weekthe highest level since November 2008, exacerbating already widespread concerns about affordability.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 9, 2022. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 9, 2022. REUTERS/Brendan McDermid

The earnings calendar expects results from headliners including FedEx (FDX), Lennard (LEN), General Mills (GIS), Costco (PRICE) and Darden Restaurants (DRI).

FedEx shares plunged 21% on Friday – wiping out $11 billion in market value for the shipping giant in its worst one-day decline after the company warned of a global recession in an ugly advance earnings report. FedEx also withdrew its guidance for the full year, citing macroeconomic trends that have “deteriorated significantly.”

The logistics giant’s announcement could be a sign of things to come as investors edge closer to the next earnings season, with many strategists sounding the alarm about earnings expectations for the rest of this year.

According to data from FactSet Research, earnings growth expectations for the S&P 500 stood at a 3.7% increase in the third quarter, sharply less than expectations for a 9.8% increase at the end of June. Analysts have cut third-quarter earnings expectations over the past 2-3 months for every sector in the S&P 500 except energy, and seven of the index’s 11 sectors are now expected to show an outright year-over-year decline in earnings, compared with just three last year. the second quarter.

In a note on Friday, Bank of America’s Michael Hartnett said a recession in earnings per share could be a catalyst for further market declines, pointing to the FedEx announcement.

Economic calendar

monday: NAHB Housing Market IndexSeptember (47 expected, 49 in previous month)

Tuesday: Building permitsAugust (1.605 million expected, 1.674 million in the previous month, revised to 1.685 million); Building permitsmonth over month, August (-4.8% expected, -1.3% in previous month, revised to -0.6%); Start of housingAugust (1.450 million expected, 1.446 in the previous month); Start of housingmonth over month, August (0.3% expected, -9.6% in previous month)

Wednesday: MBA mortgage applicationsweek ended August 12 (0.2% in previous week); Sales of existing homesAugust (4.70 million expected, 4.81 million in the previous month); Sales of existing homesmonth over the previous month, August (-2.3% expected, -5.9% in the previous month); FOMC Interest Rate Decision (Lower Bound), September 21 (3.00% expected, 2.25% in previous month); FOMC Interest Rate Decision (upper bound), September 21 (3.25% expected, 2.50% in previous month); Interest on reserve balances dueSeptember 22 (3.15% expected, 2.40% in the previous month)

Thursday: Current account balanceQ2 ($-260.8 billion expected, -$291.4 billion in previous quarter); Initial unemployment claimsweek ended September 17 (217,000 expected, 213,000 in previous week); Continuing Claimsweek ended September 10 (1,398 expected, 1,403 in previous week); Leading indexAugust (-0.1% expected, -0.14% in the previous month); Kansas City Fed. Manufacturing activitySeptember (5 expected, 3 in previous month)

friday: S&P Global US Manufacturing PMIpreliminary September (51.3 expected, 51.5 in the previous month); S&P Global US Services PMIpreliminary September (45.5 expected, 43.7 in the previous month); S&P Global US Manufacturing PMISeptember Preliminary data (46.0 expected, 44.6 in previous month)

Income calendar

Monday: AutoZone (AZO)

Tuesday: Stitch Fix (SFIX)

Wednesday: FedEx (FDX), Lennar (LEN), General Mills (GIS), KB Home (KBH), Trip.com (TCOM)

Thursday: Costco (PRICE), Darden Restaurants (DRI), FactSet (FDS)

Friday: Carnival (CCL)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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