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The market (^DJI, ^GSPC, ^IXIC) has scaled back expectations for Federal Reserve interest rate cuts this year, now pricing in just 50 basis points by the end of this year.
Brian Mulberry, client portfolio manager at Zacks Investment Management, joins Wealth to explain why he sees only one or two interest rate cuts this year.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
We've gone from a probability of 100 basis points of cuts over the course of this year and to the end of this year to now just 50 by the end of the year, based on the CME Fed watch on my last check just before the show. So where does the Fed sit within how the markets are kind of ranking all of the different inputs that need to be considered and and ultimately worked through in the minds of investors?
Yeah, absolutely. At Zacks, we've always kind of been in the camp of one or two rate cuts makes the most sense, simply because the underlying economy is still pretty firm. And I think we've heard that now from a number of Fed speakers this week, as well as what we got from the the latest FOMC meeting and the Q&A from Chairman Powell, is that most of the hard data, economically speaking, is still pretty firm and pretty solid. Retail sales pretty strong, you know, employment still pretty strong. All of that kind of stuff leads us to a a structure where prices aren't really coming down to that 2% target. So why would we have room to lower interest rates at this point? Something else has to change in the data before we're going to see a change in monetary policy. That also probably takes time, probably likely in that Q4 type of range. So September, October, November, maybe we get one or two rate cuts later in the year, because by then we'll have continued to made progress against that inflationary goal of getting prices down to 2%. So, yes, it still made a big impact. That means that rates remain above 4% for the majority of this year, and as rates stay higher for longer, that is a material headwind as in terms of the cost of capital, and it does impact earnings negatively. The longer rates stay higher. So that's certainly one issue that's out there. I think that's been very known for a long time, and managers of businesses have been able to kind of, I think, absorb that understanding that rates are not likely to go down by 100 basis points as the market wants it to. I certainly understand that lower rates would be better for growth, but there has to be a reason to do it. And the data just simply isn't taking shape at this point in order to push rates down that much, at least right now.