According to the ever-optimistic crowd of economists surveyed by Reuters, the Fed probably won’t raise rates this week. That would mark the first pause after over a year of rate hikes on autopilot. Of course, a decent chunk of analysts still think Powell & Co. have one more surprise hike up their sleeve—because the economy’s apparently still chugging along like it didn’t get the memo about high rates being bad for business.
Powell has been hinting at a pause. After all, the Fed’s already jacked up rates by a jaw-dropping 500 bps since March 2022. The question now is whether the patient survives the medicine—or whether the Fed is pausing just to reload.
About 90% of surveyed economists say rates will stay put at 5.00%–5.25%. The other 10% are betting on a 25bps hike. Meanwhile, the CME FedWatch tool is basically screaming “no change.” So unless Powell decides to go full Volcker, the consensus is… nothing happens this week.
But the real kicker? Markets are already pricing in a July hike. Strong economic data and some loose lips from Fed officials have pushed the dollar to its highest point since March. Apparently, “data dependency” now means “if the data’s good, we hike again.”
What’s the Fed’s endgame here? If rates stay put, are we witnessing a soft pause before more tightening—or is this the terminal rate?
We’ll know more when the Fed releases its Summary of Economic Projections (SEP). Back in March, most members expected rates to end the year right where they are now. If that changes, markets will move—fast. If not, well… at least we get some new dot plots to overanalyze.
Meanwhile, on Wall Street…
Tech is on a tear. Hopes that the Fed is nearly done have pushed the S&P 500 deeper into bull territory. The Nasdaq is riding high, too—Tesla’s 4.1% pop didn’t hurt. Elon’s EV juggernaut rallied 11 days straight after cutting a deal with GM to share charging stations. Guess when you can’t beat ‘em, you plug into their grid.
The VIX? It’s chilling at 13. That’s a level we haven’t seen since before COVID turned markets into a casino. Investors aren’t just greedy—they’re extremely greedy. CNN’s Fear & Greed Index is flashing 77. Euphoria much?
Now toss AI into the mix. Goldman Sachs is already running models to figure out how the AI boom will shape the S&P 500. Their dividend discount math says that if AI boosts productivity by 1.5% and GDP by 1.1%—as much as smartphones did—the index is about 9% undervalued right now.
Play around with assumptions and you get a fair value somewhere between 5% and 14% above current levels. Of course, this assumes AI doesn’t also fry all our jobs and send half the labor market into early retirement. But hey, details.
So what’s the takeaway?
Markets are acting like the worst is behind us. But with four central banks stepping up to the mic this week, the calm could break fast. Whether this is the start of a new bull cycle—or the eye of the storm—depends on what Powell and his global counterparts decide in the next 96 hours.
Grab popcorn.