Investors will turn their attention to Washington, as the Federal Open Market Committee (FOMC) gears up for its two-day meeting and representatives from big tech companies head to Capitol Hill to testify.
After cutting short-term interest rates for the first time since the financial crisis, the FOMC is expected to cut rates by another 25 basis points at this week’s meeting. Even as geopolitical uncertainty persists, most economists agree that a 50 basis point cut is unlikely.
“The Fed is almost certain to cut its policy rate by another 25bp at next week’s FOMC meeting to between 1.75% and 2.00%,” Capital Economics wrote in a note Friday. “But rising core inflation, the still-solid incoming activity data and the temporary thaw in the US-China trade war all support our view that the Fed will then skip a meeting, before cutting rates one final time in December.”
While economists and the market agree on a 25 basis point cut this week, views are divided on what the Fed’s monetary policy path will look like for the rest of this year. JPMorgan economists argue that after this week’s rate cut, no additional cuts are expected this year; however, Capital Economics believes one more cut in December looms. The Fed’s message will be critical for markets.
Given the two dissents at the July FOMC meeting, it is evident that policymakers are conflicted.
“We expect dissents, potentially on both sides,” Bank of America said in a note Friday. “We think it is very likely that Kansas City Fed's George and Boston Fed's Rosengren dissent in favor of rates on hold. Not enough has changed in the outlook to convince them of the need for additional cuts. It is possible we also have a dovish dissent from St Louis Fed's Bullard who would favor a 50bp cut. We suspect he will be OK with a 25bp cut and dovish language in the statement, but it remains an outstanding risk. In any event, the dissents will highlight that a division remains in the Committee. It’s up to Fed Chair Powell to deliver the dovish tone that the market expects.”
In addition, Fed Chair Powell’s messaging and tone will be closely monitored at the press conference following the FOMC’s decision. “The press conference itself is difficult to forecast,” UBS wrote in a note Friday. “Our expectation is that Powell will want to sound slightly dovish to maintain a bias toward easing. Doing so will preserve market pricing, which Powell has stressed has caused the easing in financial conditions this year.”
Separately on Wednesday at 10 a.m. ET, executives from the big tech companies will be headed to Capitol Hill to testify before the Senate Commerce Committee. Facebook’s Global Policy Management Head Monika Bickert, Twitter’s Public Policy Director Nick Pickles and Google’s Global Director of Information Policy Derek Slater are expected to attend the hearing on the proliferation of extremism online and how technology companies are working with law enforcement.
Meanwhile, turmoil for commodities. Oil will be closely monitored following attacks on Saudi Arabia’s oil production facility in Abqaiq and an oil field in Khurais on Saturday. Abqaiq is the largest oil processing plant in the world, and the attack will leave about half of the kingdom’s oil capacity crippled. According to S&P Global Platts Analytics, oil prices could shoot up to $70 to $80 per barrel as a result of the attack. Yemen’s Houthi rebels claimed responsibility for the attacks; however, the U.S. is suspecting that the attacks likely originated from either Iraq or Iran. As more developments emerge, market watchers can expect increased volatility in the oil markets this week.
While the corporate earnings report schedule remains light, investors can expected quarterly financial results from Adobe, Chewy and FedEx this week.
Economic calendar
Monday: Empire Manufacturing, September (4.0 expected, 4.8 in August)
Tuesday: Industrial Production month-on-month, August (0.2% expected, -0.2% in July); Capacity Utilization, August (77.6% expected, 77.5% in July); Net Long-term TIC Flows, July ($99.1 billion prior); Total Net TIC Flows, July ($1.7 billion prior)
Wednesday: MBA Mortgage Applications, week ended September 13 (2.0% prior); Building Permits, August (1.307 million expected, 1.317 million in July revised); Housing Starts, August (1.250 million expected, 1.191 million in July)
Thursday: Current Account Balance, Q2 (-$125.7 billion expected, -$130.4 billion in Q1); Philadelphia Fed Business Outlook, September (11.0 expected, 16.8 in August); Initial Jobless Claims, week ended September 14 (215,000 expected, 204,000 prior); Continuing Claims, week ended September 7 (1.670 million prior); Bloomberg Consumer Comfort, week of September 15 (63.2 prior); Leading Index, August (0.1% expected, 0.5% in July); Existing Home Sales, August (-0.9% expected, 2.5% in July)
Friday: N/A
Earnings calendar
Monday: N/A
Tuesday: Adobe (ADBE); Chewy (CHWY); FedEx (FDX) after market close
Wednesday: General Mills (GIS) before market open
Thursday: Darden Restaurants (DRI) before market open
Friday: N/A
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Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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