Start cutting rates, they said.
It will be fun, they said.
The Federal Reserve's fight against inflation is taking hold, and that could mean central bankers finally lower rates next year. But rate cuts won't necessarily be the win markets are hoping for, Business Insider's Jennifer Sor writes.
Investors have been begging the Fed to consider cutting rates for the better part of a year. Even as banks failed, the Fed held firm on its war against sticky inflation.
A cooler-than-expected inflation report was enough for banks and market experts to declare an end to the Fed's tightening policy.
But minutes released from the Fed's most recent meeting didn't indicate cuts were imminent. The notes stated central bankers were comfortable keeping their monetary policy "restrictive" to clamp down on inflation.
Still, some interest rate traders are predicting rate cuts coming as soon as this March, according to CME's FedWatch Tool.
But it's important to remember why central bankers cut rates. It's not simply to let the market off the leash.
A rate cut is likely in response to a slowing economy, Jennifer writes. And if the Fed were to get as aggressive as UBS suggests it might — lowering rates nearly three percentage points by the end of 2024 — that could be because we're already experiencing a full-blown recession.
Another key piece of the economy facing headwinds complicates the case for rate cuts being a boon for investors.
The Fed has long touted its goal of a soft landing: lower inflation while not cratering the economy.
It's primarily made good on that promise. The process hasn't always been smooth (see: SVB, Big Tech layoffs, etc.), but the wheels haven't ultimately come off.
However, a key factor in keeping the economy afloat — consumers — is losing steam.
Retail giants Walmart and Target noted during recent earnings calls they were seeing consumer spending dip, Business Insider's Dominick Reuter writes. It's another sign that US consumers have blown through most of the savings they accumulated during the pandemic and are wracking up debt.
And now the pullback comes on the cusp of the biggest season for consumer spending: the holidays.
So yes, rates will ultimately be a win for the market. But it'll take plenty of sacrifice to get there.
No comments:
Post a Comment