Image source: Wikipedia

Today, the United States Federal Open Market Committee (FOMC) begins meeting for its two-day FOMC monetary policy meeting, after which the Fed will announce its latest decision (or lack thereof) on interest rates.

The FOMC meet and its subsequent press conference is likely to be watched closely by markets and investors alike. Not so much for the possibility of a June rate cut – with the ultra-cautious, hawkish stance the Fed has taken in recent years, that would be unlikely – but more for the overall sentiment the Fed expresses about inflation and the macroeconomic environment.

Depending on the tone and hints the Fed drops, they could intimate whether rate cuts are coming sooner (September) or later (December).

Here are a few things to watch out for from the FOMC tomorrow:

1. Mention of the abundant latest Nonfarm Payrolls data
2. Wednesday’s US inflation report
3. Unanimity in voting – or not
4. Mentions of Treasury securities

1. Mention of the abundant latest Nonfarm Payrolls data

On June 7^th, the latest US employment data came out in the form of Nonfarm Payrolls (NFP). The NFP news was a surprise, but a pleasant one: in May, the US economy added 272,000 jobs, according to the US Bureau of Labor Statistics (BLS).

This was a landmark victory for the dollar and US economy as it was substantially higher than anticipated. Analysts had broadly expected almost 100,000 less jobs for the month’s data, anticipating a reading of 175,000 to 185,000.

Arguably, the most pressing reason for any economy to lower interest rates is that economic data, such as employment numbers or consumer spending, are suffering due to the high interest rates.

With positive jobs reports, a country theoretically doesn’t need to lower interest rates, as people are still working and therefore, presumably, still pumping money back into the economy with their spending.

2. Wednesday’s US inflation report

Although the FOMC begins its monetary policy meeting today, arguably its most vital piece of data for the decision-making process only comes out tomorrow. On Wednesday June 12^th before US markets open, the nation’s latest CPI inflation data will be released.

Last month’s US inflation report brought stable, if not outright positive, news. The Bureau of Labor Statistics (BLS) reported on May 15th that the Consumer Price Index (CPI had dropped 0.1% to 3.4% on a yearly basis in April 2024, versus a reading of 3.5% month-on-month in March.

If tomorrow’s data gives good news of more softening in US inflation, this could substantially affect the Federal Reserve’s interest rate decisions going forward for the summer.

3. Unanimity in voting – or not

From January up until May 2024, the board of governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4% each month.

However, a change in this could be a strong sign of the tide turning towards a more dovish stance, at least with some governors.

4. Mentions of Treasury securities

In the minutes from its last FOMC meeting in May, the Fed said that:

 

Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.”

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