Who’d want to be the chairman of the Federal Reserve?
Various governors are jostling for the reported quarter-million-dollar salary when Jerome Powell leaves the building at the end of his term. But recent history shows that the job comes with intense pressure…
President Trump and Treasury Secretary Scott Bessent have been calling for the Fed to slash rates. Bessent thinks rates should be around 1.5% lower. And Trump is pushing for a lot lower than that (around 3-4% lower).
I can’t think of a time in my trading career when the Fed’s independence has been so severely tested.
Powell may have capitulated at Jackson Hole by putting a rate cut on the table. But there’s still plenty to play out.
And it’s going to take an experienced hand to extract profits from the markets in the months ahead…
Two Weeks Till the FOMC Meeting
The next Federal Open Market Committee (FOMC) meeting is fast approaching. The Fed’s interest rate decision is now just two weeks away.
Yet the market has plenty of economic data to digest before the Fed makes its final decision.
On the one hand, services and manufacturing activity have been slowing.
The Institute of Supply Management released its Manufacturing Purchasing Managers’ Index (PMI) yesterday. Manufacturing activity has been steadily contracting since March.
And the Services PMI has also been falling since October last year. July’s reading was just barely in positive territory at 50.1 points. Anything under 50 indicates contraction. The next Services report is due tomorrow.
Plus, recent jobs data has been weak. Job openings were down, and nonfarm payrolls (NFP) were heavily revised lower. We’ll get a look at the latest Job Openings and Labor Turnover Survey today, with NFP and unemployment data on Friday.
If these numbers continue to slide, that would ordinarily provide the case for a rate cut.
But here’s the problem: The Fed is trying to balance all these factors out against fears of rising inflation…
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More Inflation Data to Come
On Friday, July’s core Personal Consumption Expenditures (PCE) inflation reading came in at 2.9% year-over-year – right as expected. (Core inflation excludes volatile items like food and energy and is the Fed’s preferred inflation gauge.) Yet the market sold off on Friday.
And there are two more important inflation readings to come before the Fed meets this month.
Next week, we will get the latest Producer Price Index (PPI) data. Recall that last month’s massive number came in way over (up 0.9% month-over-month versus the 0.2% expected).
What’s more, PPI often acts as a precursor to consumer inflation. Typically, increases appear in consumer inflation two to three months later. So a soft print next week might temporarily mask bigger problems to come.
Then there’s Consumer Price Index (CPI) data the following day…
If we see more blowout inflation numbers, the Federal Reserve will face intense scrutiny. The market may start second-guessing the telegraphed rate cut… or additional rate cuts from the Fed later this year.
Right now, I still think a rate cut is coming in September. Jerome Powell’s dovish comments at Jackson Hole have painted him into a corner. He would face extreme heat if he left rates unchanged.
But as economic data comes out, the market will debate the size of that rate cut… and future rate cuts.
That’s going to kick up volatility. And I expect we’ll see the potential to snag some eye-watering gains.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. The Fed’s interest rate decision isn’t the only factor affecting the markets this month… and into the end of 2025.
The same week that the Fed makes its interest rate decision, another key Wall Street event is occurring. And it has the potential to create massive swings.
I’ve been using this phenomenon to bank outsized profits for decades… yet this month’s Fed decision could ramp up the action even more than usual.
But you’ll want to be prepared to trade BEFORE the meeting. That’s why I’m holding a special briefing session the week before the Fed’s decision.
To join me on September 10 and learn all the details, all I ask is that you RSVP here with one click.
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