The Global Market Wait Game: Will the Fed's Interest Rate Decision Move Markets?

The S&P 500 closed up 1.47% on Friday, but investors are likely holding their breath for Wednesday's interest rate decision from the Federal Reserve, as market sentiment and survey data remain gloomy. While earnings and macro data have come in stronger than expected for Q1, investors are waiting to see how Fed Chair Jerome Powell will navigate the current economic landscape.

Markets Move Higher, But Investors Are Cautious

Stock markets in Asia and Europe largely moved higher this morning following nine straight upward trading sessions of the S&P 500 in the U.S. However, S&P futures were down 0.78% this morning, suggesting that some investors might want to sell their recent gains today. The 30-Day Fed Funds futures market gave a greater than 98% chance of the Fed keeping rates on hold at 4.25% to 4.50%. This indicates that investors are waiting for Wednesday's interest rate decision before making any significant moves.

Recent Earnings and Macro Data: A Mixed Picture

Recent earnings have come in strong, with 69% of S&P 500 companies having reported, 70% beating Q1 earnings estimates, and 54% beating revenue estimates. This is a positive sign for the economy, but investors are still cautious due to the uncertainty surrounding trade policies and inflation. "With the recent surge in economic data, we're seeing an increase in interest rates," said JPMorgan Chase analyst Dubravko Lakos-Bujas in a recent note. "However, with the ongoing trade tensions, it's difficult to predict what will happen next."

The Fed's Dilemma: Lower Rates or Higher Rates?

The Federal Reserve faces a challenging decision on Wednesday. On one hand, recent earnings and macro data suggest that the economy is growing stronger than expected, which would require higher interest rates to prevent inflation from rising. On the other hand, sentiment and survey data from the private sector remain gloomy, suggesting an economic slowdown, which would require lower interest rates. "The Fed's main problem is inflation uncertainty," said UBS analyst Paul Donovan this morning. "There is little confidence in what future trade taxes will be."

Fed Watchers Weigh In: Will Powell Change Course?

While the majority of economists and analysts expect the Fed to keep rates on hold, some are speculating that Powell might surprise the market with a rate cut. Goldman's chief economist, Jan Hatzius, thinks the Fed might be somewhat biased toward cuts rather than raises. "While the FOMC appears to be setting a higher bar for rate cuts than during the 2019 trade war, we do not think that high inflation would deter it from cutting if the unemployment rate begins to trend higher as the tariff shock hits the economy," he told investors in a recent note.

The Market Impact of Powell's Commentary

While the Fed is not expected to change rates on Wednesday, Powell's commentary will likely move markets globally. "Powell faces an unenviable puzzle: Recent earnings and macro data have come in strong, but sentiment and survey data remain gloomy," said analyst Lakos-Bujas. "Absent a clear direction either way, the Fed is likely to hold." This means that investors will be closely watching Powell's words for any clues on future monetary policy.

The Global Economy: A Mixed Picture

The global economy is facing a mixed picture, with some economies showing signs of growth while others are struggling. The trade tensions between the US and China have created uncertainty, making it difficult to predict what will happen next. "We're seeing an increase in interest rates, but it's not clear whether this will lead to higher inflation or lower economic growth," said Lakos-Bujas.

Conclusion

The global market is waiting with bated breath for the Fed's interest rate decision on Wednesday. While earnings and macro data have come in stronger than expected, investors are still cautious due to the uncertainty surrounding trade policies and inflation. The Fed faces a challenging decision, but it is likely that they will keep rates on hold. However, Powell's commentary will be closely watched for any clues on future monetary policy. As the market waits for Wednesday's interest rate decision, one thing is clear: the global economy remains uncertain, and investors are holding their breath for what comes next.