The U.S. Federal Reserve meeting on interest rates is front and center. The Fed will deliver its decision on Wednesday at 2 p.m. ET. It's what the Fed says about future rate cuts that will get everyone's attention. Is this simply a one-off rate cut to "keep the economic expansion on pace," or does the Fed plan to continue this easing cycle for the rest of the year? Words matter, and the Fed should choose its words carefully.

Fed Funds Rate: 10 yr
Fed Funds Rate 10 yr.

The Fed looks at a wide range of economic data when determining its course on interest rates, but two key areas are showing signs of softening: consumer spending and the jobs market. Even though both are relatively healthy, they are both trending lower, which threatens the overall economy and investor sentiment.

If the Fed cuts by 0.25%, keep an eye on the following:

  • The yield on the 10-year U.S. Treasury. It has bounced off of recent lows given better news on the trade front and economic data. A rate cut could keep that trend going as investors move aggressively back into stocks.
  • The S&P 500. It crossed the 3000 level, but a rate cut combined with a sign from the Fed that it will keep cutting rates through the end of the year is likely to push the broader market to new highs.
  • Mortgage rates: They fell when the Fed began easing, but have picked back up again as the housing market has turned into a buyer's market. Throw enough chum in the water, and the sharks will come.
  • CDs and savings rates: Just a few months ago, banks were offering 2.5%–3.0% for savings accounts and certificates of deposit. But, given the recent rate cuts by the Fed, those attractive offers have collapsed, making the bank a less attractive place to park cash.
S&P500 1 yr
S&P500 1 yr chart.

Economic Reports

Beyond the Fed meeting, there are two economic reports in the U.S. to pay attention to next week. The industrial and manufacturing production reports for August come out on Tuesday. Both will reveal how much the trade war is chipping into those sectors. Even though the rhetoric has calmed down in the last two weeks, August was a rough month for those sectors, and serious damage may have been done.

The Global Economy

We'll also get Producer Prices and Retail Sales for the U.K. on Wednesday. Given the Brexit madness, we'll be curious to see if the economic impacts are starting to manifest themselves in Great Britain. Parliament has been sent home, or prorogued, so consider this the quiet before the storm.

We'll get a read on core inflation from the Eurozone on Wednesday, as well. As we know, the ECB just cut rates yesterday, citing stubbornly low inflation as one of the reasons to lower rates even more. Expect that number to come in low.

And don't cry for me, Argentina... We'll cry for you. The country will report GDP numbers on Thursday, and given the recent developments down South, don't be surprised to see a really low number, like a negative 6% growth rate. Tough times in el Rio de la Plata.