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When Will the Fed Begin to Cut Rates?

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This week’s Economic Perspective highlights rate cuts and the impact on the economy.
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Fed Chairman Powell is eager to cut policy rates but has been deterred by recent hot economic data on spending and inflation. My forecast assumes that the Federal Reserve will implement one or two rate cuts this year. The primary risk in the investment outlook is that the Fed will decide on a more aggressive easing path, which would culminate in an overheated economy.

Contrary to the official view of the FOMC, current policy settings are not restrictive. Financial assets are overvalued and vulnerable to a correction when rising inflation compels the Fed to tighten monetary conditions. Perceptions of a more hawkish monetary policy would trigger a rise in market yields, forcing bond prices lower. Because of the very strong correlation between the stock and bond markets, rising bond yields would result in falling stock prices... READ MORE

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April 8, 2024
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