The stock market continued its positive run last week (S&P 500 is up over 11% year to date) and one of the main drivers is the inflation data and the outlook for interest rates. Last week’s report of the Consumer Price Index showed inflation rose 3.4% in April on an annual basis, which was slightly less than March’s rate of 3.5%. While this seems like a small change, the downward move is positive in the eyes of the market, which is desperately awaiting interest rate cuts. This positive news gave the market some traction last week that helped the Dow close above 40,000 on Friday. While some may argue that interest rates are having too big of an impact on the market, there is no denying the importance the rates play in the economy. The Federal Reserve (the “Fed”) plays a crucial role in shaping the economic landscape, and one of its primary tools is setting interest rates. These rates have far-reaching effects, influencing everything from borrowing costs to investment decisions and consumer spending. The impact on mortgage rates is a prime example of how these rates can affect consumers. In 2024, the initial view was that the Fed would have several cuts throughout the year. However, inflation remains stubbornly high, and each inflation report has caused the Fed to hold rates steady with no cuts in sight for the time being. Despite the persistent high inflation, there are still some bets that the Fed will cut rates this year (hence the positive market reaction to last week’s inflation data), and it is worth noting when those decisions might happen.

The Federal Open Market Committee (FOMC), the monetary policymaking body of the Fed, meets regularly to assess economic conditions and determine the appropriate course of monetary policy. One of the key decisions made during these meetings is whether to adjust the federal funds rate, which is the interest rate at which banks lend reserves to each other overnight. The Fed’s stated goal has been to see a reduction in inflation data, with a target of 2% inflation rate before cutting interest rates. This does not mean that the Fed will only cut rates if inflation reaches 2%, however, the Fed has made it clear it wants to see inflation under control for a meaningful amount of time before it cuts rates.

So, when are these crucial meetings taking place for the rest of 2024? Here is a look at the schedule:

June 19-20, July 31-August 1, September 18-19, November 6-7, and December 18-19. During these next five meetings, policymakers will analyze a number of economic indicators, including inflation, employment figures, GDP growth, and other global economic developments, to measure the health of the economy and determine the appropriate course of action regarding interest rates.

As it has done all year, the market will certainly react (at least in the short term) to any news regarding interest rates and inflation data. We will continue to monitor any Fed decisions regarding interest rate cuts. Any cuts to interest rates will impact our clients in a number of ways, such as the rates earned on money market funds, decisions to lock in longer-term CDs or treasuries, price impact on bond funds, and mortgage rates to name a few. As always, please feel free to reach out to us with any questions about interest rates or the market.