Economic Projections: What to Expect from the Fed This Week

Now the Federal Reserve is front and center this week as investors face two big concerns a slowing job market and still high inflation in the US.

Now US stocks bounced back in recent months, helped by lower trade tensions after Trump's Liberation Day speech back in April.

But the rally stumbled last Friday with global markets dropping after Israel struck Iran and Iran fired missiles in response.

Now G7 leaders are in the Canadian Rockies right now amid rising. tensions with the US over foreign policy as well as trade.

As we kick off this holiday shortened week on this Monday morning, I am joined by Chris Versace, CIO of Tamatica Research.

So first and foremost, Chris, let's take a look at the Fed Reserve because we can't forget the fact that they do have a meeting this week with the meeting kicking off tomorrow morning.

So we get the rate decision, Powell's statement, and the SEP.

So what is your focus when it comes to the Fed?

Well, I don't think anybody really expects the Fed to deliver a rate cut.

I think the odds by the CMA Fed Watch tool say 100% no cut, but it's going to be the language that the Fed uses during the policy statement during Powell's press conference, and how that reacts relates to the updated set of economic projections.

And I think everybody's going to be eyeing the number of implied rate cuts for the second half of this year.

Back in March, folks were thinking, oh, it looks like 2. and the SEP at the time in March said two rate cuts.

The market has vacillated around, but you know, the question here, Rey, is, are we going to start to see the impact of tariffs?

Are we going to potentially see the flow through of what we're seeing in Israel and Iran on the oil market, leading gas prices higher?

Another tailwind for inflation.

How does the Fed think about all of this?

I think that's what folks are going to be focusing on and whether or not they reiterate.

The SEP with two rate cuts for the back half of the year.

Yeah, and Chris, we'll be awaiting a Powell's statement coming out on Wednesday afternoon for sure.

We have to keep in mind that Thursday US markets will be closed, so we'll have to see what the market reaction is in the aftermath of that statement from Powell.

But when we're looking at the geopolitical situation here, Chris, stock prices and the defense sectors spiked on Friday and Did come after Israel launched fighter jets and Operation Rising Lion and on the heels of that, the US aerospace as well as defense giants that are known for slow growth and that typically trade at high for price to earning ratios were in the spotlight.

So how are you assessing the geopolitical situation and what does this mean for the different sectors here?

Well, you know, I think there's a couple of things to think about there, Remy.

First and foremost, even before we started to see this renewed Israel-Iran conflict, we were seeing reports about NATO countries ramping their defense spending closer to 3%, some higher than that.

So that helps explain some of the movement and the upward trajectory that we've seen in some of these names.

Certainly what we saw last Friday, last Thursday night last Friday was a big catalyst for these names.

I think that they've kind of jumped understandably so, given rising geopolitical conflicts, the potential for other countries to get involved.

But I think as we look at the events today, Remy, we are seeing reports that Iran is contemplating backing.

Of uranium enrichment, I think that's a very big positive step towards an eventual deal.

But I'm also hearing that Iran needs some type of face saving events.

So we'll have to pay attention to this in the next couple of days.

And if we do get a deal like that, I do think some of that push higher in defense stocks could be given back.

Yeah, and Chris, as you mentioned, this is a fast moving situation, so we'll have to keep an eye on those headlines and of course any statements coming out from the G7 meeting in Canada.

I do want to focus on what's coming at the end of this week.

Of course, we get the Fed tomorrow and the rate decision on Wednesday.

As well as US retail sales tomorrow morning, but Friday is a big day for US markets with triple which expiration, as well as the S&P quarterly rebalance, and these events often are among the year's highest volume trading days.

So tell us about your expectations for the end of this week.

Well, I do think you're right, Remy.

I think we've got, we have a lot of developments to watch throughout the week and what we see, or in some cases don't see, whether it's potential movement on trade deals during the G7 meetings, a resolution on Israel, Iran, what the Fed has to say, you know, while we have a day Thursday with the markets closed for the Juneteenth holiday, Friday is going to be a volatile day.

But I also think that it may not be as bad as feared, Remy, you know, folks on Wall Street, they do like to squeeze in, you know, their time off when they can, especially as we get ready for the June quarter earnings season.

That leads me to think that, you know, trading desks might be a little thinner this Friday, blunting the typical volatile day that we see at least a little bit that might mean we have some follow through early next week.

OK, Chris, well, thank you so much for joining me on this Monday morning and as always, thank you so much for your insight and analysis.

Thanks, Remy.