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Given the recent uncertainty surrounding global trade, the week ahead will provide key perspectives on the global economy from the Federal Reserve (Fed), Bank of Japan and Bank of England. All three central banks meet this week with unique issues to address, such as the drama playing out in England surrounding Brexit and Theresa May’s successor.
I expect the Fed will try to take a middle-ground approach at this meeting regarding its positioning on interest rates. Due to the impact of tariffs and the upcoming G20 summit, the Fed is in a difficult situation as markets anticipate a rate cut. One tactic they could take to help address these expectations is to stop quantitative tightening before it is set to end in September. The odds of this happening are less than 50/50, but it could be a surprise tactic to buy the Fed time.
I expect stocks will continue to grind higher unless the Fed reduces the markets’ expectations of a rate cut. As the last decade has taught us about stocks, don’t fight the Fed. Interest rates have fallen across the yield curve for the past six months, and unless the economy slows quickly, they probably have room for a pullback.
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