As markets attempt to recover from recent sell-off action that’s left the S&P 500 (^GSPC) and Nasdaq (^IXIC) in correction territory, one major catalyst this week could make or break a comeback: Wednesday’s Federal Reserve policy decision.
The central bank is expected to hold interest rates steady in the face of tariff uncertainties and recent growth concerns.
But the simultaneous release of the Fed’s quarterly forecasts, otherwise known as the Summary of Economic Projections (SEP), along with Fed Chair Jerome Powell’s post-decision press conference, will be at the center of investor unpacking.
“Powell post-FOMC will have to reassure markets growth remains healthy and inflation’s trajectory still points to 2% as confidence is wavering amid stagflation worries, or outright recession fears,” Evercore ISI’s Julian Emanuel wrote in a note to clients on Sunday.
A bleak economic scenario in which growth stalls, inflation persists, and unemployment rises, stagflation has become the latest buzzword in financial markets as investors attempt to understand the administration’s shifting trade narrative and other policy unknowns, including recent efforts to cut government jobs from Elon Musk’s Department of Government Efficiency (DOGE).
In a global survey of 171 participants, Bank of America’s latest Global Fund Manager Survey, released Tuesday, showed 71% of surveyed investors expect stagflation, the highest level since November 2023.
“With regards to growth (the ‘stag’ part of stagflation), Powell will need to reconfirm his recently articulated certainty that the ‘hard’ data remains supportive, even as the ‘soft’ data is weak,” Emanuel wrote.
“On the ‘flation’ part of stagflation, Powell must indicate inflation remains on its path to 2%, even amidst potential near-term hurdles.”
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