📉 Are Fed Rate Cuts Finally Here?
Are we finally going to get the interest rate cuts everyone has been talking about for months? A deep dive into the data that matters, in this week’s Fastest 4 Minutes in Finance.
The Federal Reserve Open Market Committee meets next Wednesday, and the expectation is the members will vote for a rate cut. According to LPL Research, Fed fund futures have fully priced in a quarter point cut, and are currently pricing in a full percentage point cut before Fed Chair Jerome Powell’s term ends next May.
Powell has continually said that the committee will be data driven, and the data is clearly supporting a rate cut.
📊 Unemployment, Payrolls, and Inflation Data
Unemployment in August rose to 4.3%. Payrolls grew by 22,000, but revisions to June and July numbers have largely been to the downside.
This week, a reading on wholesale inflation surprised on the upside. The producer price index, which measures the change in the selling prices received by domestic producers for their goods or services, actually dropped on a month-over-month basis and was up year-over-year just 2.6%.
The Fed wants inflation at 2%, but is also watching the unemployment numbers. A rate cut would be the lever they would pull to create lower borrowing costs for businesses, and consumers. The hope would be it would stave off a recession.
📈 Stocks and Cash on the Sidelines
If that works, stocks historically have gone up. One reason why, according to LPL Research, is there is a lot of cash on the sidelines.
This chart shows the market capitalization of the Rusell 3000 Index over the past 25 years. That index represents about 98% of the investable U.S. equity market. That’s the blue line. The orange line shows money invested in money market funds. Historically, the two move in opposite directions. When the market is rising, there’s less in money market funds, when the market is declining, there are more inflows into the more stable investments.
That hasn’t been the case since the 2022 downturn. Both have been rising. LPL points out that a meaningful cut in rates, could coax the capital currently on the sidelines back into the game.
✅ Bottom Line: Stay Plan Driven
Bottom line, while the Fed may be data driven, you should be plan driven. The economic data continues to be mixed, and the stock market is never a straight ride up. We should expect market volatility, and not try to get out while we are on top. Staying invested in equities for the long-term, is still the best way to reach your goals.*
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance. Independent Advisor Alliance and GenWealth Financial Advisors are separate entities from LPL Financial. Brian Wesbury is not affiliated with GenWealth or LPL Financial. *All investing involves risk, and no strategy can assure success.
