Navigating the Fed’s Rate Decision: What to Expect from Powell’s Press Conference

Let's get to the big story breakdown.

Well, we are digesting the latest economic data releases this morning in the previous session, the S&P 500 closed up nearly 0.5%, breaking above 6600.

Now the Fed is expected to focus on a cooling labor market even as inflation remains sticky as the central bank kicks off its two-day meeting.

Fetcher Powell's press conference is set to be one of the most important events of the week, along.

The policy announcement, the Fed will release its quarterly.

At the same time, US customs duties reaching a record high last month, making the Fed's job more challenging.

Well joining me this morning at the New York Stock Exchange is Michael Reinking, senior market strategist at the NYSE.

Michael, good morning.

Thank you so much for joining me.

Hi Remy, good morning.

Thanks for having me.

Well, here we are, September 16th.

We've been anticipating this day as the kicks off its two day meeting.

But of course tomorrow is the right decision.

We got some economic data releases, including retail sales.

So what do you make of the economy where we are?

Yeah, so this, this morning's retail sales number came in better than expected, right?

It doesn't signal this kind of sharp decline kind of in the economic activity that some people have been fearing.

Yeah, there were some signs of weakness, you know, continued in kind of the housing related sectors, kind of furnishing. even department stores were a little bit weak, but the non-store retail, which was like your internet, internet sales, was a very strong number.

Now the other thing that I think is really important to think about in terms of that retail sales number is that that number is not an inflation adjusted number, right?

So you saw the import prices come in much hotter than expected, right?

So there's that suggests that some of the kind of strength that you're seeing.

In the retail is actually kind of inflation, right, not purely kind of demand driven, right?

So I think that's something to keep in mind.

Now markets largely have kind of just taken the news in stride.

I think it would have taken a really, really negative number to really kind of move the needle kind of in terms of the Fed rate decision tomorrow, and you're looking at kind of equity futures around unchanged, kind of treasury yields have ticked up a little bit.

Yeah, and the Fed tomorrow afternoon at 2 p.m., the rate decision expected to be a 25 basis point cut, but we can't without a crystal ball, we can't be certain.

So of course we're going to pay attention to what comes out at 2 p.m. and 2:30 p.m. how we will just start speaking and the dot plot or the summary of economic projections.

So what are you watching out for?

Yeah, so look, I mean, you know, as we, as you kind of alluded to, we've been talking since kind of the May time frame about the Federal Reserve.

In the table for this rate cut, right?

They put the they put the silverware on the on the table.

They put appetizers out at the kind of the last meeting.

I think the question from here is really kind of, are we going to have filet for dinner or is it going to be a hamburger, right?

And so you know markets are looking in terms of kind of how chair Powell's going to couch, you know kind of tomorrow's cut.

Look, it's most likely going to be 25 basis points, right?

I mean there are some.

I would imagine that you're going to see at least 2 dissents in terms of looking for a 50 basis point cut with Waller and Moran, who's now who's now on the board, you know, we'll see what Bowman does who dissented at the last meeting.

It wouldn't be 100% shocking to see.

Another official dissent and call for no cuts, right, which would be really, really kind of an interesting scenario, something we haven't seen in quite a while.

Look, in terms of the summary of economic projections, that's going to be the first thing markets focus on, you know, we're going to be looking to see if the Fed can um signals.

An additional two cuts through the remainder of this year and then where they are in terms of their dot for next year and whether we go they go all the way down to kind of that 3% level which is around where kind of futures markets are pricing in or if they kind of just take a moderate kind of step in that direction.

Look, I don't think it's going to be this this this big moment where Chair Powell really Acknowledges that everything is you know that we're going to embark upon a really aggressive cutting cycle.

I think he continues to kind of suggest that we're in a moderately restrictive level, we're we're moving towards moderation, you know, and that in that process that they're going to be cautious and they're going to, um, you're going to be data dependent, right?

So I don't think you're going to get this major, major shift from Chao.

Yeah, and of course at 2:30 p.m. we'll be popping our popcorn and watching that presser, but of course we know that there's a lot of volatility in terms of market reaction after the rate decision and as Powell starts speaking.

So what asset classes will you be paying attention to?

So I mean it's an interesting setup in that we've had equity markets and treasury markets move very significantly ahead of this catalyst, right?

So I think You know, the concern is that you get a kind of sell the news response.

Now we're in this kind of interesting time period where this week is triple which options exploration and the quarterly index rebalances on Friday.

You've had volatility, you're kind of become pretty compressed and you've had a lot of the systematic trading strategies have gotten pretty long, you know, kind of moving into this catalyst.

So if you do start to see kind of a sell the news response where power is not necessarily as doubish as markets had hoped for, right?

You could start to see kind of some downside momentum pick up.

We're also in this period where you know we're moving into the buyback blackout window, right?

And that's that's also been kind of a key, key for volatility within equity markets as we look back, you know, where we see these kind of, you know.

Downs where it tends to happen kind of after an options expiration when you're ahead of the earnings season when companies are in the buyback blackout window right now I saw Goldman said we're about 40% of companies in the S&P 500 are in that window by the end of next week it'll be about 70%.

So we'll have to see kind of if you start to see any sort of real negative downside if it kind of snowballs and starts to build some momentum.

OK, Michael, well, we will have to leave it there, but I'll get the popcorn and the broomsticks ready for this week.

Thank you so much for joining me.

Thanks for having me.