The Federal Reserve (Fed) of the United States will hold a two-day monetary policy meeting on Wednesday, and although it is expected to keep interest rates unchanged, officials may change the policy statement and abandon their tightening stance. In addition, tech giants such as Apple and Microsoft will also release their earnings reports.
The Fed made the decision to pause interest rate hikes for the third time in December last year, keeping the federal benchmark interest rate unchanged at 5.25% to 5.50%. Furthermore, they released a dovish signal, expecting to cut interest rates at least three times by 2024, with a projected median estimate of 4.6% by the end of 2024.
Against the backdrop of market expectations for rate cuts, the Federal Open Market Committee (FOMC) of the Federal Reserve will hold its first meeting of the year on January 30th and 31st. According to the CME Fed Watch tool, the current market expectation is that the Fed will maintain the federal benchmark interest rate at 5.25% to 5.50% with a probability of 97.9%, while the probability of a 0.25% rate cut to 5% to 5.25% is only 2.1%.
In response to this, Nick Timiraos, a journalist from The Wall Street Journal known as the “Fed Whisperer,” stated in an article on the 28th that due to sustained economic growth, the Fed is not expected to cut interest rates this week. Although the core CPI, excluding food and energy costs, has been at or below 2% for 6 out of the past 7 months, the Fed wants to ensure the sustainability of this situation before cutting rates.
It is worth noting that Fed officials may take a significant symbolic step this week by no longer hinting at a higher likelihood of rate hikes in their policy statement, signaling a departure from their tightening bias. This would prove that officials are considering rate cuts in the coming months.
Nick Timiraos pointed out that the Fed usually cuts interest rates when economic activity slows sharply, but this is not the case this time. Until the end of last year, the US economy remained unexpectedly strong. Now, Fed officials are considering whether not taking action under weakening inflation could impose excessive restrictions on economic activity.
Meanwhile, several tech giants, including Apple, Microsoft, AMD, Google parent company Alphabet, Qualcomm, Amazon, and Meta (Facebook’s parent company), will all release their latest earnings reports this week. These earnings reports and market outlooks from these industry leaders are expected to deeply influence sentiment in the AI industry and supply chains.
According to Reuters, among the “Big Seven” tech giants that have largely driven the S&P 500 index higher over the past year, Alphabet, Microsoft, Apple, Amazon, and Meta account for nearly 25% of the index’s market value. Therefore, their earnings performance could have a significant impact on the overall market trend. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, stated that if these companies’ earnings decline, it could weaken the overall market.
In addition, before the Fed announces its latest interest rate decision this week, the ADP Employment Report, also known as the “mini nonfarm payroll,” and the JOLTS Job Openings report will be released on January 31st at 9:15 p.m. Taiwan time and on January 30th at 11:00 p.m., respectively. Market expectations are that both of these data points will show a slight decrease compared to the previous month, highlighting a cooling job market.
The US nonfarm payroll data for January will be released on February 2nd at 9:30 p.m. Taiwan time, with an expected increase of 177,000 jobs, much lower than the previous month’s 216,000 jobs, and the unemployment rate is expected to remain at 3.7%.
This week, there will be several key economic data releases and important company earnings reports, which could bring about significant market volatility. Investors should exercise caution.