Investors are confident the Federal Reserve will cut interest rates by the end of its September meeting.
As of Tuesday morning, the market was pricing in a 100% chance of a rate cut in September. According to CME FedWatch:That’s up from 70% probability a month ago.
The confidence increases June inflation beat expectations Combined with Signs of further weakening of the labor marketSo economists and investors alike are taking the data to mean the Fed will soon start cutting interest rates as inflation moves closer to its 2% target.
“Recent data suggest that the labor market is continuing to soften and inflationary pressures are easing significantly, particularly in the housing sector,” Matthew Ruzzetti, chief U.S. economist at Deutsche Bank, said in a July 12 research note that also included a forecast for a rate cut in September. “These developments should have a material impact on the outlook for monetary policy.”
Federal Reserve Chairman Jerome Powell said Monday The Fed chairman said recent data has given the central bank “somewhat” more confidence that inflation is falling to its target, but he declined to say what that means specifically in terms of when the Fed might cut rates.
“I’m not going to send a signal about any specific meeting,” she said. “We’re going to make these decisions on a meeting-by-meeting basis and based on the evolving data and the balance of risks,” Powell said. During the interview At the Washington Economic Club.
Regardless of when a rate cut comes, investors are confident that the path forward for interest rates remains low, making them even more confident that a rate cut will come soon. It has led to a broader stock market rally.
The market’s hottest sectors over the past year have underperformed as investors shifted money away from technology.
The Round Hill Magnificent Seven ETF is Tracking the group of big tech stocks driving the stock market rally in 2023has fallen by more than 3% in the past five days.XLRE) and industry (Article 41), both interest-rate sensitive sectors, were the market’s biggest winners, rising about 5% over the same period.
Small Cap Russell 2000 (root) index rose nearly 10%, Finally surpassing the 2022 high This is a first in the current bull market.
“If this trade continues, and there’s still the prospect of a rate cut this fall, the bull market may finally wake up, which would be good news for all investors,” Carrie Cox, chief market strategist at Ritholtz Wealth Management, told Yahoo Finance on Monday.
