Everything You Need to Know About the June FOMC Meeting and Inflation Readings Dear Reader, Tuesday kicked off the two-day Federal Open Market Committee (FOMC) meeting. And then Wednesday afternoon the latest Federal Open Market Committee (FOMC) statement was released. As expected, the Fed left rates unchanged, and the federal funds rate stands at 5.25% – 5.50%.
Most important to Wall Street, however, was the latest “dot plot” survey.
This chart, which is updated quarterly, shows where Fed officials think key interest rates will be for the rest of the year. Now, in the last dot plot in March, Fed members were projecting three cuts this year. However, following several hot inflation reports, Wall Street was expecting fewer rate cuts. And this outlook was confirmed when the dot plot was released yesterday.
So, in today’s Market 360, we’ll take a closer look at the dot plot and how many rate cuts the FOMC officials are now anticipating this year. I’ll also explain why I’m upset with the Federal Reserve. In addition, I’ll review the latest Consumer Price Index (CPI) and Producer Price Index (PPI) readings and if they could impact the Fed’s rate-cut timeline. And then, I’ll explain why the key to success in the current market environment is to be invested in stocks with superior fundamentals. The June Dot Plot Survey As you can see in the dot plot below, four members anticipate no rate cuts this year, seven are anticipating one cut this year and eight members are still calling for at least two cuts before the end of 2024.  When you put the median on those three different opinions, you get one rate cut. Now, the Fed is projecting four rate cuts next year, up from three rate cuts in the March dot plot. So, the Fed is just kicking the can down the road.
Unfortunately, Fed Chairman Jerome Powell did not give Wall Street any other clues on when the central bank would cut rates this year. Instead, he maintained that the Fed would remain “data dependent.” Personally, I was very upset by the FOMC statement and dot plot. I said in a Growth Investor Special Market Podcast yesterday that although the Fed acknowledged that inflation is improving, officials won’t lower their estimate for the Personal Consumption Expenditures (PCE) index. The Fed also raised its estimate for unemployment to 4.1%.
If I were running the Federal Reserve, I would cut rates in late July, September, and then cut rates right after the election two days later. So, I would still have three rate cuts this year. But I’m not running the Fed. The May CPI and PPI Readings The latest FOMC statement and dot plot isn’t all that’s on the economic docket this week…
The latest Consumer Price Index (CPI) reading was released Wednesday morning. Headline inflation was flat in May and up 3.3% year-over-year. That compares to a 0.3% rise in April. Economists were calling for a 0.1% increase in May and 3.4% increase in the past 12 months.
Core CPI, which excludes food and energy, increased 0.2% in May and is up 3.4% year-over-year. That compares to a 3.6% annual rise in May. So, core inflation showed a slight year-over-year improvement and slightly below economists’ expectations for a 3.5% increase.
The PPI was released this morning. Headline PPI dropped 0.2% in May, well below economists’ expectations for a 0.1% increase. This also compares to a 0.5% increase in April. PPI increased 2.2% year-over-year.
Core PPI, which excludes food, energy and trade, was unchanged in May. Economists had anticipated a 0.2% increase in May, compared to a 0.4% bump in April. On an annual basis, core PPI increased 3.2%.
The biggest factor behind the surprise decline was the 4.8% drop in energy. According to the Bureau of Labor and Statistics, “Nearly 60 percent of the May decrease in the index for final demand goods can be traded to a 7.1-percent decline in prices for gasoline.” Wholesale food prices fell 0.1%, while egg prices plunged 35%. Now, I should add that Powell noted during his press conference that the FOMC committee was happy with the CPI report, and if this trend continues, the Fed will be able to cut rates. So, I suspect today’s PPI report should put the Fed in an even better mood.
Remember, the Fed has a 2% inflation target, and this week’s inflation readings show that both consumer and wholesale inflation are inching towards it. It’s Every Stock for Itself It’s pretty simple what’s going on. It’s every stock for itself. In order for a stock to be successful, it needs to have great earnings. This is especially important as we head into the final weeks of June, when quarter-end window dressing gets underway.
This occurs when institutional fund managers make their portfolios “extra pretty” for their quarterly reviews. To do this, they add the best-performing, fundamentally superior stocks. I expect fund managers will turn to my Growth Investor stocks, as they fit the bill to a “T.”
My Growth Investor stocks are characterized by 17.3% average forecasted sales growth and 182.8% average forecasted earnings growth.
So, no matter what happens with the Fed, I am confident that my Growth Investor stocks will remain the new market leaders and continue to steadily prosper.
(Already a Growth Investor subscriber? Click here to log in to the members-only website now.) Sincerely, |
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