The pause that refreshes? Not yet.
The Fed is likely to raise rates again on May 3....despite economic slowdown fears
It was only a month ago that investors were hopeful about what was coming next from the Federal Reserve. Inflation seemed to be under control, which meant that the Fed would likely hold steady at its May 3 meeting. (The price of progress?) According to the CME’s FedWatch tool, traders were pricing in an 83% chance that the Fed would keep rates at its target range of 4.75% to 5% back on March 24. So much for that.
Even though pricing pressures have cooled in the past few months, the Fed has signaled that at least one more rate hike is probably in the cards. As such, investors are now factoring in more than 85% odds of a 25 basis point rate increase…to a level of 5% to 5.25%.
Will that be it? There is a decent chance that the Fed might finally be ready to pause in June. And that might be a prudent move. After all, there are growing concerns that the Fed’s rate hike campaign might lead to a recession.
To that end, shipping giant UPS shocked Wall Street with lousy earnings Tuesday.
CEO Carol Tomé cited “deceleration in U.S. retail sales” in the first quarter, which “resulted in lower volume than we anticipated.” She added that “given current macro conditions, we expect volume to remain under pressure.”
Big Brown isn’t just nervous about the U.S. either. The company said Tuesday that revenue for the full year would be at the low end of its guidance range from January, citing the fact that “over the first quarter of 2023, the global volume environment deteriorated due to challenging macro conditions and changes in consumer behavior.”
Shares of UPS tumbled 9% on the news. Rival FedEx fell 3% in sympathy.
Fed chair Jerome Powell will likely need to acknowledge the recent consumer spending softness when he speaks to reporters following the central bank’s interest rate announcement next Wednesday. The Fed is not releasing any new economic projections or its so-called dot plot on May 3. So investors will be paying extremely close attention to what Powell says about the economy and any future rate hikes beyond next week.
If he sounds more dovish than hawkish, then the market will likely cheer the coming pause. For the short term at least. Whether or not a soft landing for the economy is still in the cards is an entirely different matter.