A Fed rate cut would be a 'happy pill' for markets: Strategist
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Wall Street will be watching for the latest labor data in Friday's jobs report for the month of May as investors speculate on what could be the next economic catalyst to encourage the Federal Reserve to begin cutting interest rates in 2025.
LPL Financial Chief Economist Jeffrey Roach and Siebert Financial CIO Mark Malek sit down with Madison Mills to discuss what a rate cut would mean for markets (^DJI, ^IXIC, ^GSPC, ^TYX, ^TNX, ^FVX) and the inflation pressures the Fed is navigating while waiting for fresh data.
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How big of a catalyst might a Fed cut coming sooner rather than later be for this market?
Well, it would certainly be a happy pill for the market. Uh, a lot of the challenges that we're all looking at for the markets right now, unfortunately lower Fed funds rates are not going to necessarily help any of those challenges. However, markets ultimately always like lower rates and clearly if the Fed did do something, it would certainly send a positive signal to the market and maybe improve sentiment in the market.
Jeffrey, I want to bring you back in on exactly what Mark was just saying, what would it take for the Fed to cut sooner rather than later? How bad would the economic data have to look?
Well, you know, I think the Fed is really focusing on these nagging inflation pressures. You know, I referenced just a little bit ago the ISM surveys report as it relates to employment. You know, from the most recent ISM report on business that we just got two days ago, input costs are still rising pretty significantly. So that's a real concern. So the Fed is in the wait and see mode. Interestingly enough, it's it's possible that firms are in the wait and see mode too as well. Going back to labor market numbers, it seems as if firms are not interested in necessarily adding strongly to payrolls, but they're also conversely not really interested in shedding payrolls. You don't really see uh, the firings increase as well, right? The hirings and the firings, they're they're kind of static at this point. Wait and see. I think back to the original question here on when and if the Fed will act, they're certainly not going to act uh, in this upcoming meeting. Uh, it's there's a chance that they actually hold in July as well if the inflation numbers are still elevated and payrolls continue to show some stability.
Mark, do you agree with that path forward for the Fed?
Yeah, I I think so. I think, you know, our base case is still about two cuts for later on this year, although there was a little bit of a bump the other day in Fed funds futures. We saw that as a result of the numbers that we got, the ADP numbers. Uh, but I think at this point, they can afford to wait and I think that's the mode that they're in. Um, it's interesting though, if we look at some of the behind the scenes commentary from the Fed, such as the Beige Book, and also we saw the meeting minutes earlier in the month, there are concerns amongst the Fed. Although, whether they act on them now or later, it's more likely going to be later. And we're still focusing on two even though the market's starting to inch into possibly three when we look at futures at least.
