As the final trading day for 2023 commences, Wall Street is looking forward to 2024 when many believe the Federal Reserve will begin to cut interest rates. What could the fallout look like if the Fed begins to cut too early or too many times in this economic environment?
Unlimited Co-Founder, CEO, and CIO Bob Elliott joins Yahoo Finance to give insight into the Fed's looming rate decisions and the impacts they could have on the overall stock market.
"Any time the Fed quickly cuts interest rates is a time you don't want to be holding stocks, and so I think there's a real disconnect between what we see priced in the stock market and what we see priced into the bond market right now," Elliott says on equities. "Stocks are pushing new highs, reflecting the fact there's a strong set of liquidity conditions and the fall in long-end rates is actually on the margin stimulative to the US economy."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
DIANE KING HALL: It is the final trading day of 2023, and as we prepare to end the year with a bang, we also have to set ourselves up for what could be a wild 2024, with geopolitical tensions showing no signs of cooling, potentially contentious election on the horizon, and inflation remaining sticky. Our next guest has his eyes on the risks.
We have Bob Elliott, Unlimited co-founder CEO and CIO with us. Now, Bob one of the risks you've cited is markets pricing and up to 7 rate cuts in 2024. So let's get your perspective on this. What are you expecting from the Fed? Are you in the seven camp?
BOB ELLIOTT: Well, I think the odds that we see that magnitude of cuts from the Fed are pretty low. And the reason why that is is central banks move quickly to respond to growth slowdowns. They don't necessarily respond swiftly to inflation moderating to around their target. And so a lot of the short rate market is expecting the Fed to see that lower inflation, that stabilizing inflation around 2% and quickly cut in response when there really is no urgency.
From the Fed's perspective, what they see is they see an unemployment rate at secular lows, they see growth above potential, and they see inflation that's around their mandate. And you put that all together, there's no urgency to make any moves, let alone cut seven times.
- So Bob, make it makes sense for us here because you would think if the Fed does end up having to cut, albeit I don't believe it will be 7 times, but if they do, what does that mean about what's happening in the economy that would have led them to cut 7 times that the markets are not factoring in?