The Federal Reserve’s policy-making Federal Open Market Committee (FOMC) is set to hold its two-day June meeting this week, with its latest interest rate decision, statement, dot plot, and economic forecasts all scheduled to be released at 2 p.m. EDT on Wednesday.
While the FOMC isn’t expected to cut interest rates at this meeting, it’s by no means out of the question. Here’s a rundown of how likely a rate cut is, as well as the other things investors should keep an eye on…
Will there be a rate cut, or will the Fed hold off for now?
The short answer is “probably not.” Investors generally expect that the next interest rate move by the Fed will be a downward one but aren’t convinced that it will happen at the June meeting.
To be clear, there’s certainly a possibility that the Fed will go ahead and cut rates. According to the CME FedWatch Tool, there’s a 20.8% probability that we’ll see a 25-basis-point cut in the Federal Funds Rate target range, with an 79.2% probability that rates will be held steady at the current target range of 2.25% to 2.50%.
The market seems more convinced that the FOMC will decide to cut rates at its July 31 meeting instead, with an 83% probability that at least a 0.25% percent cut will come at that meeting’s conclusion. Here’s a quick guide to where investors currently see rates going:
| Federal Funds Rate Target Range | After June Meeting | After July Meeting |
|---|---|---|
| 2.25%-2.50% (current range) | 79.2% | 17% |
| 2.00%-2.25% | 20.8% | 66.6% |
| 1.75%-2.00% | 0% | 16.4% |
DATA SOURCE: CME FEDWATCH TOOL. AS OF MONDAY, JUNE 17 AT APPROXIMATELY 9:20 A.M. EDT.
I mentioned that the market is convinced that the next move will be downward, so it’s interesting to note that investors are not pricing in any chance of a rate hike at the next two meetings. To be clear, the FOMC could still decide to raise rates, but it’s fair to say that this would be a big surprise.
If there’s no rate cut, here’s what to look for
There are few documents that are more closely watched and dissected word-for-word than the statement the FOMC releases at the end of each meeting.
While any change in language is potentially significant, the key word to look for this time if the Fed doesn’t decide to go ahead with a rate cut is “patient.” The rationale is that the Fed has used that word in previous statements to indicate that no interest rate movements are imminent. The removal of the word from the statement could signal otherwise…
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