Is the Federal Reserve inching closer to cutting U.S. interest rates? And how long will the central bank continue to tolerate low inflation? Wall Street hopes to glean answers to these questions and more when a summary of the Fed’s last big meeting is made public.
The Fed’s decision-making arm, known as the Federal Open Market Committee, or FOMC, kept a freeze on a key U.S. interest rate in early May. It also took another step to keep rates low by paying banks less to effectively leave money idle. Minutes of the April 30-May 1 meeting will be issued Wednesday afternoon.
Several months ago the Fed abandoned plans for further interest-rate increases in 2019 because of persistently low inflation and a somewhat slower economy after a bout of rapid growth last year.
Read: Boston Fed’s Rosengren sees ‘no clarion call’ for interest-rate hike soon
Many investors even think the central bank will cut interest rates this year. Not only has the economy softened, they point out, but another round of tit-for-tat tariffs between the U.S. and China in an intensifying trade spat could further weaken the economy and stoke inflation.
The “FOMC minutes may shed light on whether trade uncertainties and softer economic data could push the central bank to cut rates,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Some Fed officials have pushed back against talk of rate cuts. Atlanta Federal Reserve President Raphael Bostic, for instance, said on Monday that a rate cut is not “imminent.”
Read: Atlanta Fed’s Bostic says next rate move still up in the air
The minutes of the last FOMC meeting are likely to indicate whether Bostic’s view is the prevailing one.
The surprisingly low rate of inflation, meanwhile, has alarmed some Fed officials, who seem willing to adopt a new strategy known as “inflation averaging” in an effort to nudge prices higher. Such an approach would mark a historic break with how the Fed has traditionally reacted to inflation.
Read: Fed’s Brainard says ‘new normal’ means central bank needs to let inflation run hotter
So far the Fed has been unwilling to take the final step. Fed Chairman Jerome Powell and other key members contend that a recent dip in inflation is temporary and that prices should hit the central bank’s 2% target in the near future.
“They emphasize heavily that weakness in the first quarter was transient,” noted senior economist Sam Bullard of Wells Fargo Advisers. “but I am sure there are some folks who are more concerned that inflation is actually weaker.”
The stock market DJIA, +0.77% SPX, +0.85% rallied to record or near record highs recently in response to the Fed’s less aggressive stance. Another rally could be in the offing if the Fed cuts rates, though the trade fight with China has restrained stock gains in the past week and a half.
One thing investors are unlikely to find in the report is any talk of politics. President Trump recently called for the Fed to cut rates and mimic the response of the Chinese central bank after steeper U.S. tariffs went into affect.
Fed officials have studiously avoided any direct political talk as is the central bank’s custom.