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Briefing.com Summary:
*The FOMC decision is out at 2:00 p.m. ET along with the Summary of Economic Projections.
*The market is expecting the FOMC to vote for a 25-basis-point increase in the target range for the fed funds rate.
*Retail sales were robust in August, including, and excluding, gasoline station sales.
You might have heard that the Federal Reserve will be issuing a policy directive and summary of its economic projections (SEP) at 2:00 p.m. ET today. You might have also heard that the market expects the FOMC to vote for a 25-basis-point hike in the target range for the fed funds rate to 3.75-4.00% and to follow through with at least one more rate hike before the end of the year.
Other components of this hearing test include speculation about whether Fed Chair Warsh will convey a hike today as being a "dovish hike" or a "hawkish hike" during his press conference, which will start at 2:30 p.m. ET.
One thing is certain at this point: the market will be shocked if the FOMC doesn't raise rates or if it raises rates by a larger-than-expected 50 basis points.
The latter is not in the fed funds futures market pricing, but today's retail sales report for August and the Import-Export Price Index for August just might bolster that expectation for at least one more rate hike before the end of the year.
Total retail sales increased 1.2% month-over-month in August (Briefing.com consensus: 0.9%) following an upwardly revised 0.5% decline (from -0.6%) in July. Excluding autos, retail sales surged 1.4% (Briefing.com consensus: 0.5%) following an upwardly revised 0.2% decline (from -0.3%) in July.
The key takeaway from the report is that it is indicative of ongoing strength in consumer spending on goods. Take gas station sales out of the equation, and retail sales were still up 1.1% month-over-month; core sales, which exclude autos, gasoline, building materials, and food services, jumped 1.4%.
Separately, import prices rose 0.7% month-over-month and were up 7.0% year-over-year. Excluding fuel, import prices were up 0.8% month-over-month and 5.5% year-over-year. Export prices increased 0.6% month-over-month and were up 8.6% year-over-year. Excluding agricultural products, export prices increased 0.7% month-over-month and were up 8.9% year-over-year.
The equity futures market was already exhibiting a positive bias ahead of these reports, aided by sliding oil prices and a 10-yr note yield that once again met resistance after testing 5.00% overnight. Arguably, it was also aided by some speculation that there could be a relief rally on the other side of the Fed decision, not because the market is happy that the policy rate is being raised but because the decision itself is out of the way.
What Fed Chair Warsh has to say, what the SEP suggests about the likely rate path, and how the bond market reacts to it all will have a lot to say about whether the market had the correct line of speculation ahead of today's open.
Currently, the S&P 500 futures are up 22 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 140 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 97 points and are trading 0.3% above fair value.
These indications only point in the direction of today's open. After that, it is a free market to choose where it wants to go, just as it will be following the Fed decision.
