Fed in focus after volatile week for stocks

**Colette Eau Claire** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Colette Eau Claire, and here is Schwab's Early Look at the Markets for Monday, June 15th. After stocks rebounded to end last week, this holiday shortened week will bring key central bank meetings, including the first Federal Reserve meeting helmed by new chairman Kevin Warsh. In a quiet week for earnings, industrial production data due out today and retail sales due Wednesday will be the highlights on the economic front. The main event before US markets close this Friday, in observance of the Juneteenth holiday, is the Fed meeting, which starts tomorrow and wraps up Wednesday afternoon. No change in interest rates is expected, but the meeting, particularly the Fed statement and Warsh's press conference Wednesday afternoon, will draw plenty of interest. Heading into the week, odds of the Fed's standing pat on rates stood at 98 percent, according to the CME FedWatch tool. From a market angle, the real intrigue will come when the Fed releases its projections for rates and economic growth. The quarterly dot plot, issued in March, baked in a single rate cut this year. That's likely to change in the new dot plot, but the question is whether enough policymakers pencil in a possible rate hike to make that the likeliest outcome at some point in 2026 Warsh reportedly isn't a fan of the dot plot, which plots policymakers' estimates of where rates will head in coming years, and it will be interesting to see whether he makes that clear in some way. The same goes for his apparent preference for trimmed inflation gauges over the Fed's current preferred gauge, the Personal Consumption Expenditure Price Index. Last time the Fed met, three policymakers went on the record opposing what they called an easing bias in the Central Bank Statement. Investors might want to carefully read the updated statement to see if it changed to a more neutral perspective or even slightly hawkish one. Any move toward hawkishness might buttress yields and weigh on stocks. As of late Friday, the CME FedWatch tool put the odds of the Fed raising rates by the end of the year stood at 59%. That's down from more than 70% on Tuesday last week before inflation data was released.
Last week's inflation data might indeed have given the Fed some breathing room. Inflation is elevated, but most gauges came in below expectations. Another helpful development was that hopes for a peace deal with Iran sent crude oil prices lower at the end of the week. Still, oil prices remain elevated, and even if the Strait of Hormuz opened immediately, it would likely take months for supplies to return to normal. This might play into the Fed's thinking, and recent resilient US jobs and manufacturing data could make it easier for the Fed to focus more on the stable prices part of its dual mandate. That said, Warsh sounded dovish at his confirmation hearings and appears to favor rate cuts at some point. The Bank of Japan or BOJ makes a rate decision of its own early Tuesday and appears likely to hike, according to a Reuters poll of analysts.
Earnings action remains light this week, with few companies of consequence on the calendar. Often, an earnings pause can intensify market focus on outside events, particularly geopolitics. A handful of firms worth watching this week include Kroger, Accenture, and CarMax. May industrial production data kicks off the week. Manufacturing has been a bright spot in the US economy the last few months, with output surging 0.7 percent in April from the previous month. May housing starts and building permits are due tomorrow. Housing hasn't been much of a bright spot, though data released last week showed that sales of existing homes in May topped expectations, thanks partly to slightly lower mortgage rates compared to a year earlier. Last time out, housing starts fell 2.8 percent month over month in April, and building permits rose 5.8 percent. Both figures topped analysts' expectations.
Retail sales for May follow on Wednesday morning, offering clues to whether higher gas prices are cutting into spending in other areas. CPI data last week showed that after accounting for inflation, hourly wages fell on an annual basis for a second straight month. A decline in consumer spending would be a drag on economic growth. Consumers have been in a bad mood for months, but Friday's Consumer Sentiment Report from the University of Michigan pointed to a slightly brighter outlook. Overall sentiment rebounded more than expected, as did consumers' view of current conditions. Inflation expectations, a key concern at the Fed, also eased up slightly. Consumers expect inflation of 4.6% a year from now, down from 4.8% a month ago. A last talked about, but still important, report to watch on Thursday is Treasury International Capital Data for April. It provides a look at domestic and foreign investor demand for US treasuries. So far, flows haven't turned negative, but if they do, it could mean pressure on the treasury market and associated rising yields and pain for stocks.