Inflation is significantly cooling. But if you’re expecting the Federal Reserve to actually cut interest rates this year…well, I used to live in Hoboken, New Jersey, and some of my neighbors there had an expression: fuhgeddaboudit.

According to the latest meeting notes of the Fed’s policy-making Federal Open Market Committee (FOMC), the committee expects to bring the fed funds rate to 5.50% to 5.75%, which suggests that the Fed will initiate two more hikes this year of 0.25% (25 basis points).

The big news this week will be the conclusion on Wednesday of the FOMC’s two-day meeting. Wall Street’s consensus expectation is that the FOMC will hike its benchmark interest rate yet again by 25 basis points, pushing it to a range of 5.25% to 5.50%. The committee may “pause” after that.

Since March 2022, the Fed has pursued its most aggressive tightening campaign since the early 1980s. We’re starting to see the consequences.

The consumer price index (CPI) in June 2023 rose only 3% on a year-over-year basis, following 4.0% growth in May. The CPI peaked at 9.1% in June 2022, the biggest increase since November 1981.

The economy is starting to cool off, just as the Fed intended, with jobs growth resilient but slowing. The elusive goal of an economic “soft landing” seems in reach.

After the FOMC’s announcement Wednesday, Fed Chair Jerome Powell will conduct his customary press conference (brace yourself). Let’s hope Powell doesn’t pull a “Debbie Downer,” as is his wont.

At his previous presser in June, Powell pointedly emphasized the imperative of elevating rates until inflation gets closer to the Fed’s target of 2%.

PMI reports on manufacturing and services activity released on Monday revealed contradictory trends in the U.S. economy. Manufacturing data signal contraction, which reflects the waning of spending on goods. However, services spending continues to signal hefty demand from consumers.

WATCH THIS VIDEO: Making Sense of the Market’s Mixed Signals

As interest rate hikes start to exert their lagging effects, household spending probably will slow in the latter half of this year. That said, jobs growth should shore up consumer spending.

We’ve enjoyed a strong stock market rally so far this year, with gains last week and on Monday. On Tuesday, the main U.S. stock market indices extended those gains, and closed higher as follows:

• DJIA: +0.08%
• S&P 500: +0.28%
• NASDAQ: +0.61%
• Russell 2000: +0.02%

The Dow Jones Industrial Average and S&P 500 both hit 52-week highs; the Dow closed higher for the 12th consecutive day.

Interest rates have been edging higher, with the benchmark 10-year Treasury yield hovering at 3.88% and 2-year yields inching up to 4.86% (as of this writing). The bond market will be focused on Wednesday’s Fed rate announcement for the latest guidance on where the policy rate will be headed in the coming months.

Am I worried that Powell and his minions will rain on the parade Wednesday? Not particularly. As long as the S&P 500 index remains well above its 50- and 200-day moving averages, I’m confident that the rally has sustainable momentum (see chart).

I typically focus on economic and corporate fundamentals, but technical analysis belongs in every investor’s toolkit. Some analysts stick to fundamentals and disdain technical analysis as a lot of voodoo. But I prefer a hybrid approach that combines both schools of thought.

Regardless, institutional traders factor technical indicators into their decisions, so this “voodoo” affects the markets, regardless.

The 50-day moving average is determined by summing up the past 50 data points and then dividing the result by 50, whereas the 200-day moving average is determined by summing up the past 200 days and dividing the result by 200. These calculations show us the average price of a stock or index during the designated trading time frame.

The moving average gives us a clue as to whether the trend is up or down; it also identifies potential support or resistance areas. The above chart paints a bullish picture, but I expect increased volatility until we get more clarity over the Fed’s intentions.

PS: Does all this uncertainty have you on edge? The key to mastering risk resides in what my colleague Jim Pearce calls “Mayhem Trades.”

Jim Pearce is chief investment strategist of our premium trading service, Mayhem Trader. Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.

John Persinos is the editorial director of Investing Daily.

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