Here's What We're Expecting From the FOMC Meeting

*May findings from the National Federation of Independent Business (NFIB) point to continued wage and inflation pressure

*We’re focused on 2025 in the Fed’s updated economic projections

*The potential for another rate cut timing surprise tomorrow is keeping us on the sideline

Equity futures point to a lower open for stocks on Tuesday. The lone piece of fresh economic data out Tuesday, the May reading for the NFIB’s Small Business Optimism Index, hit a 2024 high at 90.5 but remains well below the historical average of 98. Echoing findings across the May PMI reports, 22% of owners reported that inflation was their single most important problem in operating their business, unchanged from April and the top business problem among owners.

The findings from the NFIB suggest wage and inflation pressures are poised to continue. A net 18% of owners plan to raise compensation in the next three months, down three points from April and the lowest reading since March 2021. Forty-two percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period. The net percent of owners raising average selling prices was unchanged from April at a net 25%, seasonally adjusted. Price hikes were the most frequent in retail (55% higher, 6% lower), finance (50% higher, 3% lower), construction (42% higher, 9% lower), manufacturing (42% higher, 12% lower), and services (37% higher, 6% lower) sectors.

The market will mull those latest inflation findings over as well as the implications of yesterday’s Apple’s AAPL Worldwide Developers Conference (WWDC) as we get ready for tomorrow’s May CPI report and the outcome of the Fed’s policy meeting. In a coming alert, we’ll dig into the reactions across Wall Street to Apple’s WWDC keynote yesterday and share our take on the event and what it means for the AI-on-device upgrade cycle.

As we discussed in yesterday’s video, the Fed is expected to leave interest rates alone tomorrow afternoon, but what it says about 2H 2024 will be of keen interest to the market. Because of what recent data has shown, we continue to see one rate cut in the cards for 2H 2024, but that is predicated on improving inflation data. If we don’t see that in the next few months, that cut could slip into 2025.

Included in the Fed’s post-policy meeting materials will be its updated set of economic projections. While many are focused on implied rate cuts for 2H 2024, we will also be focused on what these latest projections say about those for 2025. What we’ll be looking to see is how aggressive, or not, the Fed aims to be in moving back to a neutral stance with monetary policy. Recent data leads us to believe the Fed may stick to its previously-forecasted two rate cuts for next year. With the prospect for just one cut this year, should the Fed signal that only two are likely, as of now, for next year, that would be a different outlook than the market’s current expectation for four to five rate cuts by September 2025.

That potential adjustment is giving us reason to tread lightly with the portfolio ahead of tomorrow afternoon’s findings. If the market has to adjust its 2025 rate cut outlook, that could give way to an opportunity later this week for us to tap our portfolio shopping list.

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At the time of publication, TheStreet Pro Portfolio was long AAPL.