Fed Expected to Hold Rates Amid Mixed Economic IndicatorsFed Expected to Hold Rates Amid Mixed Economic Indicators
Focus on CPI Data and Rate Decision:
Wednesday's U.S. Consumer Price Index (CPI) data and the Federal Reserve's interest rate decision are in the spotlight. This follows rate cuts by the Bank of Canada and the European Central Bank last week. However, the Fed is not expected to follow suit—at least not immediately.
CPI Growth Expectations:
U.S. CPI growth for May is anticipated to remain steady at 3.4% year-over-year. Energy prices likely declined in May as oil prices edged lower, while core CPI (excluding food and energy) is expected to decrease slightly to 3.5% from 3.6% in April. This reflects a more normal 0.2% month-over-month increase. Additionally, home rent price growth is projected to slow, alongside a decrease in the core services ex-rent measure that Fed policymakers closely monitor. In April, this measure increased by 0.4%, down from an average of 0.7% per month over the first quarter of the year.
Inflation Pressure Measures:
The diffusion index, which gauges the breadth of inflation pressures, has shown little improvement recently. Fed policymakers believe the current interest rates are restrictive enough to eventually bring inflation back to the 2% target. Firm U.S. employment numbers in May, including a slight increase in wage growth, indicate no immediate pressure on the Fed to lower rates.
Interest Rate Outlook:
Our base case scenario suggests that the Fed will not be in a position to cut interest rates until December. This assumption hinges on the expectation that economic growth and inflation will slow in the coming months.
Technical Analysis: SP500 Index Outlook
Weekly Chart Analysis:
The SP500 index recently retested its support line at 5260, stabilizing in a bullish zone. This suggests a continuation of the upward trend towards targets of 5423 and 5500, particularly if the CPI comes in below 3.4%.
Bullish Scenario:
As long as the price remains above 5260, the bullish trend is expected to continue, targeting 5425 and 5500, potentially reaching a new all-time high.
Bearish Scenario:
For a bearish trend to emerge, the price must fall below the support line at 5260, which could then lead to targets of 5040 and 4923.
Key Levels:
Pivot Price: 5320
Support Levels: 5260, 5193, 4930
Resistance Levels: 5423, 5520, 5600
Trading Range:
The price is anticipated to fluctuate between the resistance at 5525 and the support at 5260.
Overall Tendency:
The outlook appears bullish.
