FOMC Minutes Preview: Do Stocks Dare Hope the Fed Will Save Them?
FOMC Minutes Preview: Do Stocks Dare Hope the Fed Will Save Them?
By:Ilya Spivak
Stock markets are pining for a Fed rescue. Will they hear the right notes in FOMC meeting minutes?
- Stock markets are struggling to build a bounce after Trump tariff shock.
- March FOMC minutes are in focus to gauge the Fed’s reaction function.
- Sentiment might steady if rate cuts appear like they may arrive sooner.
Financial markets are nursing their wounds after crumbling last week in the wake of “Liberation Day”, the expansive tariff policy revamp announced by U.S. President Donald Trump. The plan appeared to be the opposite of what was hoped for, in that it made for more uncertainty about on-coming trade policy rather than less.
U.S. stock market benchmarks tested 16-month lows as the week got underway but managed to stem the bleeding for the moment. Lasting progress to the upside has failed to materialize, however. The bellwether S&P 500 index is oscillating in a choppy range, tracking down 1.8% for the week having fallen as much 5.44% early Monday.
The markets expect the Fed will dial up interest rate cuts
The spotlight now turns to the Federal Reserve as hopeful traders await signs of incoming stimulus. The markets’ expectations have understandably swung in a more dovish direction. Fed Funds futures now price in 133 basis points (bps) in stimulus by the end of next year, with four standard 25bps cuts this year and at least one more in 2026.
This overshoots the central bank’s own forecast. Officials penciled in 100bps in cuts over the same period in December and reaffirmed the view in March. Markets will keenly parse minutes from last month’s Federal Open Market Committee (FOMC) meeting to see how readily officials may shift their way.
“Uncertainty around the economic outlook has increased [and] the Committee is attentive to the risks to both sides of its dual mandate,” read the FOMC statement. Fed Chair Powell added that “tariffs tend to bring growth down and inflation up,” adding that “sentiment has fallen off…partly due to due to big policy changes by the [Trump] administration.”
March FOMC meeting minutes in the spotlight
However, Powell argued that officials are “not in any hurry to move on rates [and want] to focus on hard data” to see if the warning signs appearing in business and consumer confidence surveys carries over to realized outcomes. “The economy seems to be healthy,” he said, but “if soft data…becomes hard data, we will know very quickly.”
Sentiment may cautiously brighten if markets manage to pin down officials’ pain points, then come to conclusion that - within this context – a sense of urgency has probably emerged after last week’s events. Stock markets may try to hazard a rebound alongside bonds, as yields pull back and the U.S. dollar weakens.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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