Fed interest rate decision
Today at 2 PM ET, the Federal Reserve will announce its interest rate decision, which will be followed by its press conference at 2:30 PM ET. Investors are hoping for a rate cut and a dovish statement from the Fed. On June 4, Fed Chair Jerome Powell’s statement that “we will act as appropriate to sustain the expansion” drove a stock market rally as many investors interpreted it as a hint towards a rate cut in the near term.
Trump’s pressure on the Fed
On the other hand, President Donald Trump seems to be continuing to put pressure on the Fed and Powell to take action and cut rates. Yesterday, European Central Bank President Mario Draghi hinted towards more stimulus to the European economy if needed in the coming months. After Draghi’s comments, the euro fell sharply against the US dollar yesterday.
Could Trump demote Powell?
During a press briefing at the White House on Tuesday, Trump called Draghi’s move “very dramatic.” When asked if he still wants “to demote” Powell, Trump replied saying, “Well, let’s see what he does,” without denying or confirming the possibility of Powell’s demotion. He added that the Fed is “going to be making an announcement pretty soon, so we’ll see what happens.”
These reports come after Bloomberg News reported yesterday that “Trump asked White House lawyers earlier this year to explore his options for removing Jerome Powell.” While neither Trump nor the White House has confirmed this report, it is clear that Powell may face Trump’s criticism if the Fed doesn’t cut rates today.
If the Fed decides to keep the interest rates unchanged today, it could trigger a market-wide sell-off.
Yesterday, Trump’s tweet about his telephone conversation with Chinese President Xi Jinping and their meeting next week drove the stock market rally. After Trump’s tweet, the S&P 500 Index rose by 1.0%, while the NASDAQ Composite Index surged by 1.4% on Tuesday fueled by a rally in tech stocks. Let’s take a closer look at some notable tech companies that rose by nearly 5% on Tuesday. With this, the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Invesco QQQ Trust ETF (QQQ) also rose by 0.8% and 1.5%, respectively, yesterday.
On a year-to-date basis, XLY and QQQ have risen 20.6% and 20.8%, respectively.