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27 min ago

Stock futures rise as investors await Fed decision

US stock futures rose Wednesday morning as Wall Street awaits the Federal Reserve's latest policy decision.

Stocks declined Tuesday, and the 10-year Treasury yield rose to 4.37%, its highest level since October 2007, as investors worried the central bank will keep rates higher for longer.

Oil prices remained elevated, putting more pressure on stocks. Brent crude, the global benchmark, rose to roughly $95 a barrel. 

US housing starts fell to their lowest level since June 2020, well below economists' expectations, while home building slumped 11.3% in August from July, according to fresh data from the Census Bureau.

Automaker stocks gained after the striking United Auto Workers said that it could add more workers to its effort if more progress isn't made in negotiations with the Big Three. Stellantis shares added 1.5%, General Motors rose 1.9% and Ford rose 1.8%.

14 hr 10 min ago

What to expect from today's meeting

The Federal Reserve is expected to announce Wednesday that it is hitting pause on its rate-hiking campaign in order to parse more data and understand how previous rate hikes are affecting the US economy.

There seems to be a consensus among Fed officials that holding rates steady this month is the right move — but some have said the Fed could raise rates again after September.

Financial markets currently see a 69% chance the Fed will continue to pause rate increases in November, according to the CME FedWatch Tool.

Inflation and the job market have both slowed steadily in the past year, giving the Fed enough room to hold rates steady and wait for more data to come in. Despite ongoing volatility in energy markets, inflation is also expected to keep slowing in the coming months, mostly due to easing car prices and rents. All together, those factors give officials enough reassurance that they can pause rate hikes without risking a resurgence in price increases.

"There is nothing that is saying we need to do anything imminent anytime soon," Fed Governor Christopher Waller told CNBC earlier this month, before the latest Consumer Price Index showed higher gas prices helped push up headline inflation in August. "We can just sit there and wait for the data."

The last time central bank officials decided to hold rates steady was in June, as uncertainty spiraled over how the extent to which the spring banking crisis would constrain lending. When it became clear the economy was not being hammered by that turbulence, the Fed raised rates again in July.

14 hr 11 min ago

Could the Fed be done raising rates?

Some economists and Fed officials argue that the central bank has already raised rates high enough to eventually constrain the economy and bring inflation down to the Fed's stated target of 2%.

"We've gotten monetary policy in a very good place," New York Fed President John Williams told Bloomberg earlier this month.

But even though the Fed is reassured by inflation's steady slowdown — and the outlook — the central bank is still facing a number of uncertainties on the horizon.

14 hr 11 min ago

Watch for the dot plot

In addition to its rate announcement on Wednesday, the Fed is also set to release a fresh set of economic projections.

That forecast will likely reflect stronger economic growth and slightly lower unemployment this year, compared with previous estimates.

Officially known as the Summary of Economic Projections, it's also known as the dot plot, since it includes a chart that plots out an array of dots, showing where each of the Fed's 19 leaders expect interest rates to go in the future.

Former Fed chair Ben Bernanke first created the dot plot in 2012, mostly as a way to assure the public that Fed leaders planned to keep interest rates low for the time being. 

Federal Reserve Chair Jerome Powell has warned that “the dots are not a great forecaster of future rate moves,” and that they should be taken “with a big, big grain of salt.” 

But that doesn’t stop investors from reading into them.

25 min ago

The impact of a potential government shutdown

With a spending deadline at the end of the month, House Republicans have struggled to reach a consensus on a defense spending bill and are now are moving ahead with a plan to temporarily fund the government. Meanwhile, some Republicans are threatening to ouster House Speaker Kevin McCarthy if he doesn’t acquiesce to their demands. The political stalemate is expected to lead to a lapse in funding for the government.

In the event of a shutdown, the Bureau of Labor Statistics says it will stop releasing data, including key figures on inflation and unemployment.

That lack of crucial government data would make it even more difficult for investors and the Federal Reserve to interpret the US economy, creating the potential for policy missteps.

“If, for argument’s sake, the Fed overestimates the strength of the real economy and raises rates further in November — because of delayed downward revisions to July and August data, and delayed access to weaker September and October data — investors, businesses, and households could incur unnecessary costs and risks,” said Julia Pollak, chief economist at ZipRecruiter.

“By the time the Fed discovered its mistake, the effects of excessive monetary tightening could be difficult to reverse,” she said.

It’s unclear whether the Fed would hold rates steady in the absence of government data or how it would navigate a government shutdown when deliberating monetary policy. The effects of a government shutdown also depend on how long it lasts, which also isn’t clear at this point.

Greg Valliere, chief US policy strategist at AGF Investments, said Tuesday he now sees a 70% chance of a government shutdown. The potential shutdown could be a “long one lasting into the winter,” Valliere wrote in a note. 

25 min ago

The impact of the autoworkers strike

As the United Auto Workers strike against Ford, GM and Stellantis heads into its sixth day, it could become a headache for the Federal Reserve, mostly because of what the strike reflects about the labor market, rather than the possible economic impact.

"The Fed is thinking the UAW strike is just another sign that the labor market remains relatively tight," said Andrew Patterson, senior international economist at Vanguard. 

"They think that when you start to see these strikes — like we saw with the railroads for example — that they're a sign of relative strength in the labor market, so workers feel they can go on strike."

25 min ago

The impact of rising oil prices

Rising energy prices, which have pushed up the cost of gas in recent weeks, could be a wild card for Federal Reserve officials. The national average for regular gas is currently $3.88 a gallon, the highest price since October 2022, according to AAA.

In theory, elevated energy prices could feed into core inflation — which Fed officials are more focused on — if those prices stay high for long enough, jacking up the prices of airfares and freight. More importantly, it could affect inflation expectations.

"The Fed is obviously most focused on core, but they're not going to ignore what's going on with energy prices, particularly if the higher gasoline prices begin to affect inflation expectations and wage demands, which is a real possibility," Mark Zandi, chief economist at Moody's Analytics, told CNN.

However, some argue that higher energy prices could help the Fed tame inflation.

Morgan Stanley economists found in a recent analysis that energy price shocks have just a "small" impact on core inflation but tend to take a "sizable bite out of" consumer spending. 

The bank said that for the Fed, the recent rally in oil prices "could be a blessing in disguise."

"That could absolutely be the case," said Kristina Hooper, chief global market strategist at Invesco.

"Higher gas prices would help dampen consumer spending and that's what the Fed needs — the consumer has been driving this economy and keeping it strong."

— CNN's Matt Egan contributed to this report.

14 hr 6 min ago

How Biden has reshaped the Fed

President Joe Biden has singlehandedly reshaped the Federal Reserve Board of Governors during his presidency.

By law, the US president nominates who gets to serve on the seven-member board, which includes the chair and two vice chairs. The US Senate has confirmed four of his nominees, most recently economist Adriana Kugler for a term ending in 2026. Biden's nomination of Philip Jefferson to be elevated to vice chair and a full term for Lisa Cook were also approved by the Senate.

Three of Biden's picks for the Fed's Board of Governors are people of color, keeping with his promise of elevating racial minorities to key government posts. Jefferson is the second Black person to be vice chair in the Fed's history, Cook is the first Black woman to serve on the board, and Kugler is the first Hispanic person to be a Fed governor.

Fed Vice Chair for Supervision Michael Barr and Jefferson are perhaps the most centrist Fed officials among Biden's picks, with Cook backing a more dovish stance on fighting inflation, or one that seeks to avoid inflicting unnecessary damage to the economy through rate hikes.

Economists expect Kugler to be in the dovish camp, though in her Senate confirmation hearing she acknowledged that the Fed should focus more on the central bank's price stability mandate.

14 hr 6 min ago

Are rate cuts in the cards anytime soon?

Investors looking ahead to the next phase of the Fed’s strategy are now asking themselves how much longer will rates stay this high. But inflation’s uncertain path makes that a tough question.

“Rather than arguing about the peak rate, of how many more rate increases do there need to be, what we should probably start thinking about is how long does this last, that you’re going to be at these elevated rates,” Federal Reserve Bank of Chicago President Austan Goolsbee said earlier this month.

Some investors are betting on rate cuts as soon as early next year, perhaps on expectations that the economy might soon deteriorate. If unemployment spikes because of higher interest rates, for example, the Fed would likely cut rates to stem job losses under its mandate of maximum employment.

However, the Fed hasn’t given any hint of rate cuts just yet. In fact, according to minutes from its last meeting, in July, quite the opposite seems likely: more rate hikes this year.

Rate cuts would mean the Fed is looking to boost an economy that’s not doing well enough to promote full employment. In contrast, the Fed’s suggestion of rate hikes implies officials see the US economy is still running too hot and might not be consistent with 2% inflation.

In addition to the possibility of cutting rates because of an economic downturn, the Fed could also cut rates if inflation slows too much.

“If the Fed sees that inflation goes below the 2% target, they could start decreasing interest rates, but I don’t think they are going to start decreasing interest rates until that happens,” said Eugenio Alemán, chief economist at Raymond James.

And even if and when the cuts do begin, it’s unlikely the Fed would return to ultra-low interest rates, economists say.

US stock futures rose Wednesday morning as Wall Street awaits the Federal Reserve's latest policy decision.

Stocks declined Tuesday, and the 10-year Treasury yield rose to 4.37%, its highest level since October 2007, as investors worried the central bank will keep rates higher for longer.

Oil prices remained elevated, putting more pressure on stocks. Brent crude, the global benchmark, rose to roughly $95 a barrel. 

US housing starts fell to their lowest level since June 2020, well below economists' expectations, while home building slumped 11.3% in August from July, according to fresh data from the Census Bureau.

Automaker stocks gained after the striking United Auto Workers said that it could add more workers to its effort if more progress isn't made in negotiations with the Big Three. Stellantis shares added 1.5%, General Motors rose 1.9% and Ford rose 1.8%.

The Federal Reserve is expected to announce Wednesday that it is hitting pause on its rate-hiking campaign in order to parse more data and understand how previous rate hikes are affecting the US economy.

There seems to be a consensus among Fed officials that holding rates steady this month is the right move — but some have said the Fed could raise rates again after September.

Financial markets currently see a 69% chance the Fed will continue to pause rate increases in November, according to the CME FedWatch Tool.

Inflation and the job market have both slowed steadily in the past year, giving the Fed enough room to hold rates steady and wait for more data to come in. Despite ongoing volatility in energy markets, inflation is also expected to keep slowing in the coming months, mostly due to easing car prices and rents. All together, those factors give officials enough reassurance that they can pause rate hikes without risking a resurgence in price increases.

"There is nothing that is saying we need to do anything imminent anytime soon," Fed Governor Christopher Waller told CNBC earlier this month, before the latest Consumer Price Index showed higher gas prices helped push up headline inflation in August. "We can just sit there and wait for the data."

The last time central bank officials decided to hold rates steady was in June, as uncertainty spiraled over how the extent to which the spring banking crisis would constrain lending. When it became clear the economy was not being hammered by that turbulence, the Fed raised rates again in July.

Some economists and Fed officials argue that the central bank has already raised rates high enough to eventually constrain the economy and bring inflation down to the Fed's stated target of 2%.

"We've gotten monetary policy in a very good place," New York Fed President John Williams told Bloomberg earlier this month.

But even though the Fed is reassured by inflation's steady slowdown — and the outlook — the central bank is still facing a number of uncertainties on the horizon.

In addition to its rate announcement on Wednesday, the Fed is also set to release a fresh set of economic projections.

That forecast will likely reflect stronger economic growth and slightly lower unemployment this year, compared with previous estimates.

Officially known as the Summary of Economic Projections, it's also known as the dot plot, since it includes a chart that plots out an array of dots, showing where each of the Fed's 19 leaders expect interest rates to go in the future.

Former Fed chair Ben Bernanke first created the dot plot in 2012, mostly as a way to assure the public that Fed leaders planned to keep interest rates low for the time being. 

Federal Reserve Chair Jerome Powell has warned that “the dots are not a great forecaster of future rate moves,” and that they should be taken “with a big, big grain of salt.” 

But that doesn’t stop investors from reading into them.

With a spending deadline at the end of the month, House Republicans have struggled to reach a consensus on a defense spending bill and are now are moving ahead with a plan to temporarily fund the government. Meanwhile, some Republicans are threatening to ouster House Speaker Kevin McCarthy if he doesn’t acquiesce to their demands. The political stalemate is expected to lead to a lapse in funding for the government.

In the event of a shutdown, the Bureau of Labor Statistics says it will stop releasing data, including key figures on inflation and unemployment.

That lack of crucial government data would make it even more difficult for investors and the Federal Reserve to interpret the US economy, creating the potential for policy missteps.

“If, for argument’s sake, the Fed overestimates the strength of the real economy and raises rates further in November — because of delayed downward revisions to July and August data, and delayed access to weaker September and October data — investors, businesses, and households could incur unnecessary costs and risks,” said Julia Pollak, chief economist at ZipRecruiter.

“By the time the Fed discovered its mistake, the effects of excessive monetary tightening could be difficult to reverse,” she said.

It’s unclear whether the Fed would hold rates steady in the absence of government data or how it would navigate a government shutdown when deliberating monetary policy. The effects of a government shutdown also depend on how long it lasts, which also isn’t clear at this point.

Greg Valliere, chief US policy strategist at AGF Investments, said Tuesday he now sees a 70% chance of a government shutdown. The potential shutdown could be a “long one lasting into the winter,” Valliere wrote in a note. 

As the United Auto Workers strike against Ford, GM and Stellantis heads into its sixth day, it could become a headache for the Federal Reserve, mostly because of what the strike reflects about the labor market, rather than the possible economic impact.

"The Fed is thinking the UAW strike is just another sign that the labor market remains relatively tight," said Andrew Patterson, senior international economist at Vanguard. 

"They think that when you start to see these strikes — like we saw with the railroads for example — that they're a sign of relative strength in the labor market, so workers feel they can go on strike."

Rising energy prices, which have pushed up the cost of gas in recent weeks, could be a wild card for Federal Reserve officials. The national average for regular gas is currently $3.88 a gallon, the highest price since October 2022, according to AAA.

In theory, elevated energy prices could feed into core inflation — which Fed officials are more focused on — if those prices stay high for long enough, jacking up the prices of airfares and freight. More importantly, it could affect inflation expectations.

"The Fed is obviously most focused on core, but they're not going to ignore what's going on with energy prices, particularly if the higher gasoline prices begin to affect inflation expectations and wage demands, which is a real possibility," Mark Zandi, chief economist at Moody's Analytics, told CNN.

However, some argue that higher energy prices could help the Fed tame inflation.

Morgan Stanley economists found in a recent analysis that energy price shocks have just a "small" impact on core inflation but tend to take a "sizable bite out of" consumer spending. 

The bank said that for the Fed, the recent rally in oil prices "could be a blessing in disguise."

"That could absolutely be the case," said Kristina Hooper, chief global market strategist at Invesco.

"Higher gas prices would help dampen consumer spending and that's what the Fed needs — the consumer has been driving this economy and keeping it strong."

— CNN's Matt Egan contributed to this report.

President Joe Biden has singlehandedly reshaped the Federal Reserve Board of Governors during his presidency.

By law, the US president nominates who gets to serve on the seven-member board, which includes the chair and two vice chairs. The US Senate has confirmed four of his nominees, most recently economist Adriana Kugler for a term ending in 2026. Biden's nomination of Philip Jefferson to be elevated to vice chair and a full term for Lisa Cook were also approved by the Senate.

Three of Biden's picks for the Fed's Board of Governors are people of color, keeping with his promise of elevating racial minorities to key government posts. Jefferson is the second Black person to be vice chair in the Fed's history, Cook is the first Black woman to serve on the board, and Kugler is the first Hispanic person to be a Fed governor.

Fed Vice Chair for Supervision Michael Barr and Jefferson are perhaps the most centrist Fed officials among Biden's picks, with Cook backing a more dovish stance on fighting inflation, or one that seeks to avoid inflicting unnecessary damage to the economy through rate hikes.

Economists expect Kugler to be in the dovish camp, though in her Senate confirmation hearing she acknowledged that the Fed should focus more on the central bank's price stability mandate.

Investors looking ahead to the next phase of the Fed’s strategy are now asking themselves how much longer will rates stay this high. But inflation’s uncertain path makes that a tough question.

“Rather than arguing about the peak rate, of how many more rate increases do there need to be, what we should probably start thinking about is how long does this last, that you’re going to be at these elevated rates,” Federal Reserve Bank of Chicago President Austan Goolsbee said earlier this month.

Some investors are betting on rate cuts as soon as early next year, perhaps on expectations that the economy might soon deteriorate. If unemployment spikes because of higher interest rates, for example, the Fed would likely cut rates to stem job losses under its mandate of maximum employment.

However, the Fed hasn’t given any hint of rate cuts just yet. In fact, according to minutes from its last meeting, in July, quite the opposite seems likely: more rate hikes this year.

Rate cuts would mean the Fed is looking to boost an economy that’s not doing well enough to promote full employment. In contrast, the Fed’s suggestion of rate hikes implies officials see the US economy is still running too hot and might not be consistent with 2% inflation.

In addition to the possibility of cutting rates because of an economic downturn, the Fed could also cut rates if inflation slows too much.

“If the Fed sees that inflation goes below the 2% target, they could start decreasing interest rates, but I don’t think they are going to start decreasing interest rates until that happens,” said Eugenio Alemán, chief economist at Raymond James.

And even if and when the cuts do begin, it’s unlikely the Fed would return to ultra-low interest rates, economists say.