Decisive Moment | Weekly Excerpt June 12

Rise or pause?

The decisive moment has arrived, as the Federal Reserve on Wednesday could pause a rate hike campaign that began 15 months ago, but it is likely to be a close call and Tuesday's U.S. inflation reading will be key. The European Central Bank and Bank of Japan will also hold policy meetings, while data from China could bolster stimulus expectations.

On Tuesday, the Labor Department is expected to release the latest consumer price report just before the Fed begins its two-day meeting. Prices are expected to decline in May. Based on this, futures traders anticipate that the central bank would pause its rate hikes before restarting them in July with a quarter-point increase. The pause would give decision-makers time to assess how effectively its last 10 rate hikes had cooled the economy.

Investors will be paying close attention to the "dot plot," which outlines officials' forecasts for future tightening when the Fed concludes its two-day monetary policy meeting on Wednesday. The Fed is expected to keep interest rates on hold. While the Fed has said that a pause should not be interpreted as a sign that interest rates have peaked, markets are still discounting another 25 basis point increase in July before a corresponding rate cut by December.

Financial data

Recent economic data have revealed contradictory trends in the U.S. economy: while wage growth slowed in May, the economy added 339,000 more jobs than expected, inflation is slowing, but remains significantly higher than the central bank's 2% target.

U.S. stocks have rallied 20% from their October lows, defying concerns of a recession, a financial crisis and soaring Treasury yields, a definition of a bull market. In the past, a rise in 20% from bear market lows signaled future stock price gains.