Fed Week-Hold on Tight


It’s Fed week. The Fed’s Federal Open Market Committee (FOMC) meets tomorrow and Wednesday to decide what direction monetary policy will go, and market participants are watching and waiting intently. The narrative is that stocks have rallied in recent weeks in anticipation that the Fed is going to start lowering the Fed Funds rate after having been raising rates for the past few years. Many believe that we could see a rate cut as soon as Wednesday afternoon, but most believe that a rate cut is very likely at the July meeting (the Fed meets about every 6 weeks).  The feeling is that the Fed may like to at least take back last December’s quarter point hike, given the employment picture, while still good, may have peaked, and inflation continues to be muted. Of course, the President has made his point of view perfectly clear as he continues to publically lean on Fed Chair Powell to get rates going back downward. We have a bit of a different view of the situation and worry that rate cuts signal lack of confidence in the economy. Cuts just to appease the stock market or the President makes the Fed appear less effective and certainly less independent. But I digress…

As for today, stocks showed a slight upward bias and by the close the Dow Jones Industrial Average was up 22 points to finish the day at 26,112. The S&P 500 was up 2 points to close at 2,889. Gold was down $1 to trade at $1,342 per ounce, while oil was down $.61 to trade at $51.90 per barrel WTI.

Back to the Fed decision this week. Everyone assumes that if the Fed cuts rates or at least indicates that rate cuts are coming as soon as the July meeting, then stocks will continue to rally. That certainly would seem to be the case, but what happens if the Fed cuts rates and stocks don’t go up? I’m not predicting that necessarily, but it has crossed my mind. Then what?

Have a nice evening everyone.

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