The Fed had spoken- Expect more hikes ahead

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The latest FOMC left interest rate steady as the Fed sought to skip a rate hike, a break from the previous 10 increases that started in March 2022. As the Fed gives a breather, it does hint at further rate hikes again, probably 2 more based on the latest forecast.

Core inflation remains sticky.

Indeed, Uncle Powell touched on the persistently high rents that has not shown progress in bringing it down. While most expect a slowdown, the annual rent inflation hit 8.7% in May, and shelter costs on a general level climbed over 8% annually. Indeed, as rental cost accounts for around half of the PCE, it is critical that the Fed seek more evidence of easing in this category.

To note, PCE is Personal-Consumption Expenditure which excludes volatile components like food and energy. It has been the Fed’s favourite indicator of inflation.

July FOMC should see the rate climbing again.

After the FOMC press conference, expectations are already baking in for a rate hike in July FOMC, which now stands at 71% probability. Uncle Powell conveyed clearly that the rate pause was for the current meeting, and nothing had been made about the upcoming meeting.

Do not think about Rate Cut.

Indeed, there are no visible rate cuts in the horizon. Nobody in the committee is exploring that possibility since inflation remains too elevated for such a discussion.

He highlighted that while forecasts for inflation are expected to moderate in the next few years, there is a high degree of uncertainty and ensuring price stability will sustainably give generations of people an economic benefit. As he always mentioned, price stability is the “bedrock of the economy”, and thus a high-priority agenda for the Fed.

What’s on the menu today?

8.30 pm : Retail sales data, Philadephia Fed Manufacturing Index, NY Empire State Manufacturing Index
9.15 pm : Industrial Production

Another key data to measure the strength of consumer spending power is the retail sales data which will be critical.

With the equity market remaining in euphoria mode, we are still cautiously operating any shorts operation and mindful of significant swing long positions to ensure more nimble in our trade.

It is 15 June, Thursday, 8.55 am in Singapore and 8.55 pm in New York. It is a data-heavy week, and we hope all friends have a safe and profitable trading week ahead!