For the fourth time in five weeks, the U.S. stock market rose last week, setting a few more record highs along the way.
Stock prices have surged higher recently amid increasing confidence on Wall Street that the Federal Reserve will lower interest rates this month. But June's employment report, released Friday, showed a stronger-than-expected surge in hiring, which dampened some hope among traders that the Fed will cut rates. Meanwhile, there's been some progress on trade, as U.S. President Donald Trump and Chinese President Xi Jinping agreed not to impose new tariffs.
Anything Fed-related is likely to dominate market news in July—and this week, traders will get a lot of information to keep them busy. There are two reports on inflation due, along with minutes from the central bank's most recent meeting, and Fed Chair Jerome Powell will be testifying before Congress. Here's what you need to know:
What's happening: Traders looking for clues about the Fed's next steps will scrutinize what happened at the last meeting. Those minutes, scheduled to be released Wednesday, provide additional details about the behind-the-scenes decisions made by policymakers.
In addition, Powell is scheduled to deliver his semiannual testimony on monetary policy and the state of the U.S. economy before House and Senate committees on Wednesday and Thursday.
Why it matters: Fed policymakers set a benchmark interest rate called the federal funds rate, which affects the rates banks charge you on products like mortgages, auto loans, or credit cards. Right now, Wall Street is betting the Fed will cut rates when it meets July 30-31.
Following the June meeting, Powell said "some" central bankers believed the case for a rate cut was strengthening, but policymakers forecast only one rate cut—and not until 2020. That means Wall Street could be surprised if it expects the Fed to do one thing (cut rates) and it does another (keeps rates where they are). And because traders hate surprises, that could cause some market turbulence.
What it means for you: Speculating about the Fed's next steps is something best left to the pros, but you will be affected when policymakers eventually do cut rates. Lower rates are good for borrowers, because rates for things like mortgages or auto loans will decrease. But you'll also earn less money on your savings account—in fact, some banks are already lowering rates slightly.
What's happening: Two reports on inflation for the month of June come out this week. On Thursday, one will measure the average change in consumer prices, or what you pay for a basket of various goods and services, including food and housing. Friday's report focuses on the other side, the producers—and the average change in prices these companies set for the products they sell.
Why it matters: The Fed is tasked with keeping prices in check, and it currently expects inflation to rise by 1.8% this year. Its earlier prediction was 2%, and the central bank has for years targeted a 2% rate. Cutting interest rates could help to stimulate borrowing, and boost inflation so that it's back in line with those targets. Central bankers use a different measure of inflation, and those numbers will be released at the end of the month. But economists don't expect to see much change in prices in the June reports due this week—which would reinforce that inflation is below its target, warranting a rate cut.
What it means for you: When prices jump, our dollars don't stretch as far when we're buying groceries or paying for services. And the Fed closely monitors changes in the cost of living to decide whether to raise or lower interest rates.
Traders always monitor economic reports carefully, and they'll be especially careful this month because they expect a rate cut. They're trying to make sure the economic reports coming out this month will give policymakers the necessary justification to lower rates to sustain the current economic expansion. While all this can make for a fascinating spectator sport, it's important to remember that when investing for the long haul, you don't need to react to short-term news. The smart move is to keep saving and investing for the future.
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