The stock market has had a nice run for the past couple of weeks. But things are essentially on “hold” right now.
That’s because Wall Street is waiting anxiously for the Federal Reserve’s key interest rate decision after its May Federal Open Market Committee (FOMC) meeting this week.
Now, I plan to discuss the details of that decision in a Market 360 later this week. But the reality is that there isn’t any big mystery about the Fed’s next key interest rate decision. In fact, the futures market is telling us there’s a greater than 95% probability of no rate cut. That’s because everybody has concluded that the Fed is anticipating inflation, which has not yet materialized.
Instead, it’s important to note that Wall Street will be looking for dovish language in its policy statement – as well as in Fed Chair Jerome Powell’s press conference.
Meanwhile, recent economic data certainly gives our central bank plenty of reasons to consider a cut. Specifically…
- The most recent Beige Book survey stated that the outlook in several regions of the U.S. has worsened considerably under the cloud of economic uncertainty – particularly tariffs.
- The Conference Board’s consumer confidence index fell to 86 in April, down from 93.9 in March. This is the fifth-straight decline.
- The Institute of Supply Management (ISM) reported that its manufacturing index dropped to 48.7 in April, down from 49 in March. This was the second-straight monthly decline after being above 50 (expansion) in January and February.
- The Commerce Department’s preliminary estimates for first-quarter GDP showed an annual contraction of 0.3%, with a soaring trade deficit subtracting a whopping 4.8% from GDP calculations.
- The Labor Department announced 177,000 jobs were created in April, much stronger than expectations for 133,000 jobs. February and March payrolls, though, were revised lower by a cumulative 58,000 jobs. And earnings only rose 0.2%, so wage growth is fizzling.
I should add that European Central Bank (ECB) officials have hinted at more key interest rate cuts in the near term. Other global central banks are expected to follow suit.
Also, as I mentioned in last Saturday’s Market 360, Treasury yields have moderated. So, the Fed needs to cut at least twice to get aligned with the two-year Treasury rate. I predict the 10-year Treasury yield will fall, and that could increase pressure on the Fed to cut rates.
We Should Be Worried About Deflation, Not Inflation
Now, I have gone on record saying that the Fed is being too stubborn by not looking beyond the potential impact of tariffs.
Case in point: Treasury Secretary Scott Bessent recently testified in front of the House, and the first thing he talked about was falling prices. Specifically, lower energy prices. The fact is benchmark West Texas Intermediate crude prices have fallen from just shy of $80 per barrel at the beginning of the year to about $57 today.
What’s more, the recent inflation data indicates that owners’ equivalent rent – that’s real estate inflation – is essentially gone now. That’s important because real estate costs have been a key driver of inflation.
And yet, the Fed is worried about inflation from the tariffs. We should be worried about deflation, folks.
This is why President Trump says the Fed is being political – they’re anticipating something that may never happen. Meanwhile, growth is slowing, and prices are actually falling.
If this continues, it’s going to be kind of embarrassing for the Fed, because they will be late to the rate-cutting party.
If the Fed knows what’s good for them, they will cut rates. However, they are a stubborn bunch, so I wouldn’t hold my breath for a rate cut later this week.
Personally, I think if we don’t get a dovish statement, the market will sell off. The fact is, we’ve got evidence of deflation everywhere. So, if the Fed continues to want to fight a mythical inflation that hasn’t materialized, the markets will not be pleased.
My Most Important Warning Yet
Now, I realize my stance that the Fed needs to cut now – and up to four times this year – may seem a little controversial.
But they don’t call me “The Seer of Wall Street” for nothing.
In my 40-year career, I’ve recorded hundreds of investment briefings. I’ve helped everyday Americans sidestep market crashes, turn modest stakes into life-changing fortunes, and navigate some of the most chaotic financial environments in history.
But the video I just recorded from my Palm Beach estate may be the most important of my entire career.
Because what I’m seeing right now isn’t just another market correction. It’s something far more profound. And it starts with what President Trump’s new tariffs and the DOGE initiative are really setting in motion.
You see, what looks like routine policy is actually the catalyst for the most aggressive wealth transfer in modern American history. And unless you understand what’s happening and how to prepare, you risk getting caught flat-footed.
That’s why I created this urgent briefing to help folks understand what’s really happening behind the scenes… and to share three critical steps you can take right now to stay on the right side of this shift.
This isn’t about politics. It’s about your future.
Click here to watch my urgent message now.
Sincerely,
Louis Navellier
Editor, Market 360
