Signs the Federal Reserve May Cut Interest Rates

Time to sound the alarm: our “Fed cuts checklist” conditions are now met - and likely very close to what the Fed needs to make a first rate cut. The Fed cares about two things: price stability and full employment. To justify a cut, we expected they’d need to see (1) long and short term #inflation expectations well anchored, (2) core PCE is moving towards 2.0%, with confidence, (3) the unemployment rate is above 4.0%, and (4) wage growth is commensurate with medium term price stability. For the last two years, only condition #1 was consistently met. But over the course of the last 3 months, the rest of the conditions have finally come in line. Today's #CPI print was a big step in that direction. Price growth came in below expectations, contracting 0.1% in headline terms and growing a little under 0.1% in core terms. Underneath the surface: energy prices declined, core goods are feeling pressure from deflation in e-commerce and increasing price wards, discretionary services are seeing a a little more pressure on pricing power as competition increases, and shelter is - finally - normalizing. Non-discretionary inflation - things like insurance and medical costs - are posed to be a major remaining source of "stickiness". In his speeches and testimony in the past week, #Powell signposted that April is when started counting inflation figures as getting better. That would make Thursday’s data the third month of “better” data and the second month of “good” data. Powell’s testimony suggests they’re looking for three good reports before cutting. We believe this means they'll want to see one more constructive data point in each category to confirm their confidence in cutting rates. That takes July off the table but makes September very much live.  Initial #Fed rate cuts tend to be "relief" moments for the market, until the reason for those rate cuts - a slowing economy - come to bear. For investors that can be tactical, we believe that the #equity market rally can continue until more pronounced signs of slowdown occur. We watch for a durable rise in jobless claims or a deterioration in earnings expectations as key market signals - neither of these are flashing red today. We also believe that the first Fed rate cut will be a pivotal signal for money sitting on the sidelines. Cash rates move lower (meaning a lower total return from money market funds), the opportunity shot clock to lock in higher rates starts dissolving, and, over time, the yield curve normalizes, reducing the risk of moving further out on the curve.   We think the first of those factors is most important for investors today. As our research has shown, the best time for investors to move is 2-3 months before a Fed pivot, so investors can capture conditions before the market catches up to the rising likelihood of policy change. The time to move may be near...

“Fed's 50 bps Rate Cut: Easing the Economy or Risking Instability?”   In a bold move today, the Federal Reserve cut the federal funds rate by 50 basis points, bringing the target range to 4.75% - 5%. This marks the first rate cut since the COVID-19 pandemic, reflecting the Fed’s growing confidence that inflation, now at 2.5%, is moving closer to its 2% target. At the same time, unemployment has ticked up to 4.2%, signaling a cooling labor market, but still within the range of what’s considered full employment.   Heading into this decision, like many analysts, I expected a more conservative approach, likely a 25 basis points cut. However, by the weekend, markets had begun pricing in the larger 50 bps move, driven by shifting sentiment that the Fed would act decisively to address economic uncertainties. This aggressive cut suggests the Fed is placing its bets on inflation being under control while taking steps to avoid a deeper labor market downturn. As Chair Jerome Powell noted, the Fed aims to restore price stability without triggering sharp increases in unemployment—an ambitious goal that has sparked debate among economists and market watchers.   Despite the robust GDP growth—tracking at around 3% for Q3—the Fed remains cautious. This rate cut is also a signal to global markets, many of which are taking their cues from the Fed, as seen with other central banks already cutting rates in line with the Fed's lead. However, it’s worth noting that while inflation is cooling, the Fed’s preferred measure still shows inflation running slightly above target, which means future cuts are likely but dependent on continued progress in both inflation and employment.   Markets had a mixed reaction, with the S&P 500 closing down 0.29% and the Dow Jones dropping 0.23% after initial volatility. Investors are grappling with whether the Fed’s aggressive stance will steer the economy toward a soft landing, or if it risks overcorrecting, with potential unintended consequences for future growth and stability.   How do you assess the Fed’s 50 bps rate cut today, and what implications do you think this will have for the trajectory of future monetary policy? Share your thoughts below! #us #federalreserve #monetarypolicy #interestrates #economy #growth

Fed Holds Rates Steady, Signals Two Cuts This Year—But Uncertainty Looms The Federal Reserve kept interest rates unchanged, with its closely watched dot plot now implying a median of two rate cuts by year-end. At first glance, that may sound dovish. But a closer look at the details suggests a more cautious tone beneath the surface. Compared to March, more Fed officials are now penciling in fewer rate cuts, indicating growing divergence within the committee. Meanwhile, the Summary of Economic Projections reveals upward revisions to both inflation and unemployment forecasts—largely due to the impact of tariffs. That shift points to a more hawkish tilt, not a more accommodative one. Adding to the uncertainty, the recent spike in oil prices—driven by geopolitical tensions—is clouding the inflation outlook and complicating the Fed’s policy path. While the Fed’s projections offer insight into its current thinking, their usefulness has diminished in a trade environment shaped by tariffs at levels not seen in decades. Combined with a still-evolving post-pandemic economy, these dynamics make a near-term pivot unlikely until there is more clarity on both trade policy and inflation trends.

The Federal Reserve’s half-point cut in the Federal Funds Rates signals both the end of its fight against high inflation and a renewed focus on supporting the labor market. Chair Powell’s speech in Jackson Hole last month previewed this shift toward protecting the labor market, and those words are now turning into action. Powell and other policymakers openly acknowledged the risks to the labor market are growing, with 12 participants indicating unemployment risks were increasing, up from only 4 in June. The median projection for the unemployment rate for the end of this year and 2025 increased to 4.4%, from 4% and 4.2% earlier this year, signaling the Fed expects the labor market to soften further. With inflation trending toward 2 percent, a smooth landing can happen if actual data comes in as projected. But whether or not the pilot lands the plane skillfully depends on whether the pullback in interest rates is large enough and quick enough. The descent is going well so far, but the plane is not yet on the ground.

Jay Powell has signalled he is ready to cut US interest rates in September, as he warned that “downside risks” to the labour market had increased. In a hotly anticipated speech today in Jackson Hole, Wyoming, the Federal Reserve chair said the time had come for policy to adjust. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” The remarks at the Kansas City Fed’s annual symposium were the Fed chair’s strongest signal yet that the US central bank will soon cut interest rates from their current 23-year high of 5.25-5.5 per cent.

#WallStreet Anticipates #Aggressive Rate #Cut Wall Street has significantly raised its expectations for the #FederalReserve to implement an aggressive 0.5 percentage point interest rate cut during its upcoming meeting this week. The shift in sentiment is driven by recent US economic data showing signs of a slowdown in the labor market and cooling inflation. #Key #Factors Influencing #Expectations: 𝙇𝙖𝙗𝙤𝙧 𝙈𝙖𝙧𝙠𝙚𝙩 𝙎𝙤𝙛𝙩𝙚𝙣𝙞𝙣𝙜: Recent job reports indicate fewer jobs added in August and July, raising concerns about potential economic weakness. 𝙄𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝘾𝙤𝙤𝙡𝙞𝙣𝙜: Headline inflation has dropped to 2.5%, moving closer to the Fed’s target, though core inflation remains elevated due to pressures in the housing market. 𝙈𝙖𝙧𝙠𝙚𝙩 𝙎𝙚𝙣𝙩𝙞𝙢𝙚𝙣𝙩: Stock markets have responded positively to the rising expectations of a rate cut, with the S&P 500 nearing record highs and the Dow Jones Industrial Average hitting new records. #Market #Perspectives: -ANDY brenner of Natalliance Securities believes a 0.5% cut is warranted, pointing to weak retail sales data expected this week, which could further support the case for a larger cut. -J.P. Morgan economists also support the idea of a half-point cut. -However, Subadra Rajappa of Societe Generale suggests that a 0.25% cut is more likely, citing the Fed's history of aligning its actions with market pricing. This would mark the first rate cut since 2020, signaling the Fed's response to growing economic uncertainties. However, a larger cut could also suggest heightened concerns about the overall health of the US economy, which some experts are cautious about. Based on an article by Kate Duguid in Financial Times Graph created in Bloomberg

🚨🇺🇸The odds of a 50bps interest rate cut this week have gone from 2% to 69% in a matter of hours. But, there was no new material economic data or guidance from the FED. A 25bps rate cut was the expectation until a few hours ago. According The Wall Street Journal, on Sunday they suggested that the FED should cut a 50bps and said that the Fed's short term target rate of 5.25% to 5.50% is too high. The article suggested that inflation is declining, with CPI at 2.5%. It suggested that the gap between Core CPI and the Fed's 2% target is largely lagged effects of housing and auto inflation. More importantly, the article noted that the labor market is weakening. The unemployment rate is up from 3.5% to 4.2% since July 2023. Downward revisions in jobs data have become the new normal. Over 1 million jobs have been revised lower over the last 24 months. Financial Times published a similar article: "A 50bp cut this week safeguards against overly restricting the economy and adverse market reactions to any weak data releases before its next meeting." • This will mark the first FED policy decision without a market consensus of 90%+ since 2020. The market is currently implying an S&P 500 move of +/- 96 points after the FOMC on Wednesday. That's a ~1.7% move or ~20% of the average ANNUAL return of the index in one day. Yesterday, Elizabeth Warren calls for a 75bps FED rate cut this week. Also, the New York Federal Reserve President Bill Dudley, the FED should consider taking a more aggressive approach and cut interest rates by 50bps at its upcoming policy meeting. According Bank of America, This week's FOMC meeting decision is the most uncertain in history (data started being recorded in 2015).

All Clear for a September Rate Cut After an 8th straight meeting of keeping rates on hold at 5.5%, Chair Powell effectively said that unless inflation shows signs of re-accelerating, a September rate cut is a go. This would leave the current tightening cycle tied for the longest in modern Fed history, showing just how much tightening was required to bring inflation to heel. While not a done deal, the Fed is likely to start the rate cut cycle in September with a 25bp rate cut. If all goes well, the Fed wants to keep the pace of cuts relatively gradual since they are worried about inflation returning. One thing that can accelerate the easing cycle is a softening in the labor market, where job openings are returning to more normal levels, wage gains are moderating, and the unemployment rate continues to edge higher. While we expect cuts in September and December, a November cut could be in play if the labor market shows further signs of weakening. Data dependence is still the name of the game, but if inflation keeps slowing significantly or the labor market decelerates further, the Fed can speed up cuts. This should continue to weigh on Treasury yields and steepen the yield curve as we head closer to year-end. #interestrates #federalreserve #inflation #cpi #economy #growth #labor #unemployment #stocks #tdsecurities #tdstrategy Full note for clients:  https://lnkd.in/ekFiRFFq

Fed Chairman Jerome Powell indicated that the Federal Reserve is preparing for interest rate cuts, emphasizing that the time has come for policy to adjust as inflation has significantly declined and the labor market is no longer overheated. In his speech at the Fed's annual retreat in Jackson Hole, Wyoming, Powell noted that while inflation is still above the Fed’s 2% target, the progress made allows the central bank to focus equally on maintaining full employment. He acknowledged the need to adapt policy based on incoming data and evolving risks, without specifying the timing or extent of the rate cuts. On Friday, he said, “The time has come for policy to adjust,” and added, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” With the Federal Reserve signaling potential interest rate cuts, investors should consider adjusting their financial planning and portfolios to align with the changing economic environment. Here are some steps to consider: 1. Review Fixed-Income Investments: Interest rate cuts typically lead to lower yields on bonds, money markets, and CDs. However, existing bonds may increase in value as their higher rates become more attractive compared to new issues. If you prefer or need fixed income, now is the time to review your positions and consult with an experienced Sun Group Wealth Partners advisor. 2. Reevaluate Equities: Lower interest rates can boost equities, particularly growth stocks, as borrowing costs decrease and economic conditions potentially improve. However, it’s important to assess sector exposure, as some industries, like utilities may perform better in a lower-rate environment. This could be favorable for those who have been waiting for mortgage rates to come down. 3. Consider Dividend Stocks: With rates potentially decreasing, the appeal of dividend-paying stocks or notes might increase, especially those with strong fundamentals. These can provide a steady income stream as bond yields decline. 4. Stay Diversified: Maintain a well-diversified portfolio that can withstand various market conditions. Diversification across asset classes, sectors, and geographies can help manage risk during periods of economic adjustment. 5. Prioritize Financial Planning: Keep your budget in line, focus on needs vs. wants, and set up auto-savings/auto-investing for your important long-term goals such as retirement or education planning for your family. This is also a good year to explore your estate-planning needs. Sun Group Wealth Partners has significant resources to assist with your future planning. 6. Stay Informed: Continue to follow our weekly newsletter and watch our videos. Together, we can monitor the Federal Reserve’s communications and economic indicators. The timing and pace of rate cuts will depend on evolving data. Thank you, and please reach out if you have any questions.

Fed's Rate Conundrum: Pause Now, Cut Later? Markets Bet on the Latter In its July 30-31, 2024, meeting, the US Federal Reserve held the federal funds target rate (FFTR) steady at 5.25%-5.50%, marking the eighth consecutive pause. The decision was anticipated and reflects the Fed’s cautious stance following a cycle of aggressive rate hikes. The Fed also kept the interest rate on reserves (IOER) unchanged at 5.40%. The key update in the Fed’s statement was a shift in focus from solely inflation control to balancing both inflation and employment objectives. Fed Chair Jerome Powell indicated that, if inflation trends align with targets and labor market conditions remain stable, a rate cut could be considered as early as September. Traders now see a 17% chance of a 50 basis point rate cut in September, up from 5% earlier. Markets also expect a total 75 basis point reduction by year-end, with rates potentially dropping to 4.5%-4.75%, assuming continued progress towards the 2% inflation target and no significant deterioration in the labor market. For emerging markets, especially the Indian economy, a dovish Fed stance and potential rate cuts are likely to enhance capital inflows into riskier assets. A softer dollar could support EM currencies and boost capital inflows in India. However, the actual impact will depend on global risk dynamics and domestic economic conditions. Prabhudas Lilladher Private Limited Amisha Vora Siddharth Vora Amnish Aggarwal