Pay attention this week: You’ll get an idea about when the Federal Reserve might resume cutting interest rates.
The Fed and interest rates is a topic of intense discussion worldwide.
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Relatively high rates in the U.S. push the U.S. dollar’s value higher. That makes exporting goods and services more expensive for U.S. companies since foreign countries pay more of their local currencies to meet the stronger dollar.
Conversely, a strong dollar makes imports to the U.S. cheaper —unless, of course, the imports are subject to new U.S. tariffs, of the sort that President Donald Trump is threatening to impose.
Fed’s Powell makes two appearances
The first event to pay attention to is Federal Reserve Chairman Jerome Powell’s appearance at 10 a.m. EST Tuesday before the Senate Committee on Banking, Housing, and Urban Affairs.
It’s a twice-a-year appearance. Powell will read prepared remarks about the state of the economy, inflation and Fed policy on interest rates. Then, he will answer questions from the lawmakers.
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He repeats the presentation the next day at the same time before the House Financial Services Committee.
Powell will be questioned about why the Fed has put more rate cuts on hold for now. He has said it’s because the economy is strong enough to keep inflation both steady and stubbornly above the Fed’s goal of 2% year or less.
Trump wants to see lower interest rates, so expect some jousting — especially from the GOP members of both committees.
Stocks, meanwhile, were largely trading higher on Monday after Trump said he planned 25% tariffs on steel and aluminum imports.
Inflation data come starting Wednesday
These are the key reports due Wednesday and Thursday:
- The monthly Consumer Price Index report, due at 8:30 a.m. Wednesday.
- The monthly Producer Price Index report, due at 8:30 a.m. Thursday.
The CPI is expected to show inflation running at 2.9% year over year with the core CPI (taking out food and energy costs) coming in at 3.2%.
The PPI, a benchmark of wholesale prices, is expected to show similar results.
The bottom line: If these results come in at these levels, the Fed will wait to cut its key Federal Funds Rate, now at 4.25% to 4.5%.
Related: 12 things to know about Trump’s new tariffs
The federal funds rate is the rate the central bank wants financial institutions to use in lending to one another to meet reserve requirements.
It is the foundation rate on which U.S. short-term interest rates are built and has a little influence on mortgage rates.
CME Group’s FedWatch Tool sees a decent chance of a small Fed rate cut in June and another in the fall. Some economists were suggesting last week we might see just one rate cut.
Fed policy is seen most acutely in the cost of a mortgage The rate on a 30-year mortgage is now about 6.9%. It had been as high as 8% in October 2023 and as low as 6.1% in September 2024.
At 6.9%, the monthly principal and interest payment on a $250,000, 30-year fixed-rate mortgage would be about $1,647. At 6.1%, the payment would be about $1,515. That’s before property taxes and insurance.
More Economic Analysis:
- 12 things to know about Trump’s new tariffs
- Jobs reports to reset Fed interest rate forecasts
- Inflation report upends Fed interest rate cut bets in 2025
Fed officials to weigh in
A number of Fed officials will be speaking during the week.
- Beth Hammack, president of the Cleveland Federal Reserve Bank, speaks Tuesday at the University of Kentucky.
- John Williams, president of the New York Federal Reserve Bank, speaks at Pace University in New York.
- Raphael Bostic, president of the Atlanta Federal Reserve Bank, speaks Wednesday at a meeting of the Atlanta chapter of the National Association of Corporate Directors.
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