Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve’s William McChesney Martin Building on March 20, 2024 in Washington, DC.
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Steven Blitz, chief U.S. economist at TS Lombard, said the market will continue to rise even if the Fed chooses not to cut interest rates this year.
His comments come as investors await the release of further U.S. economic data and closely monitor clues from Federal Reserve officials on the number of expected rate cuts in 2024.
Last week, the Federal Reserve kept interest rates unchanged for the fifth consecutive time, as expected, keeping the benchmark overnight borrowing rate in a range of 5.25%-5.5%. The Federal Reserve also said at the time that it still expected to cut interest rates by three percentage points before the end of the year.
The news fueled a rally in U.S. and overseas markets, with benchmark indexes climbing to new record highs since then.
Asked Thursday about the likelihood of one or no rate cuts from the Fed this year, Blitz said things were “getting pretty good. You know, 0.4% month over month is a high number, and you know they are looking at that. They’re not just looking at it year by year. “
“What’s going on here is really an evolution, right?” Blitz told CNBC’s “Squawk Box Europe” on Thursday.
“They (the Fed) have told you they’re not going to raise rates to try to shorten the timetable to get to 2%, so if you’re in the market, you’re thinking, ‘OK,'” Blitz said.
“The key is … to let the market figure this out and not have the Fed impose this view. Let everyone slowly evolve to this position and then everything will be OK.”
Traders now see about a 55% chance of the Fed cutting interest rates for the first time in June, according to Fed data CME Group Fed Watch Tool. This is down from nearly 70% last week.
Blitz said markets would likely continue to move higher even if the Fed decided not to implement any rate cuts this year – an outlook U.S. asset manager Vanguard Group calls their base case.
“This is a very large, diversified economy and a very large country. So it’s not possible for every industry in every geographical area and every corner of the country to do well. There are always leaders (and) laggards. , it’s just the nature of economics.” Beast, right? ” Blitz said.
“The job of an equity investor is to find out what’s performing better and, you know, where the value is, but as an economist you step back and you say no, there’s no reason for stocks to go down.”
Is the window for interest rate cuts narrow?
Federal Reserve Governor Christopher Waller said Wednesday, “Not urgent” Lower the Fed’s policy rate to normalize policy.
Speaking at a gathering of the Economic Club of New York, Waller cited recent inflation data, which “tells me that it would be prudent to keep rates at their current restrictive stance, possibly for longer than longer than previously thought to help keep inflation on a sustainable track close to 2%.”
Separately, Atlanta Fed President Raphael Bostic said last week that he now expects just one quarter-percentage rate cut this year, down from the two cuts he had previously expected.
“I think Bostic is an important voice, but I think Waller is more important. I think he’s kind of considered the alter ego of (Fed Chairman Jerome) Powell, so when he says something, the market There should be a reaction,” Blitz said.
“To be fair to the Fed, I don’t have to do that, but to be fair to the Fed, they are evolving, they are doing the right things and are not rushing in either direction.”
Federal Reserve Board Governor Christopher Waller during a Federal Reserve Listening event in Washington, DC, the United States, on Friday, March 22, 2024. Three central bank decisions this week sent a clear message to markets: Officials are preparing to ease monetary policy, which has reignited investors’ risk appetite.
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Blitz said the Fed would be prepared to cut interest rates if the world’s largest economy collapses after June, but warned such a move could become “very difficult” in the second half of the year, citing the upcoming presidential election in November.
“If they do cut interest rates, it’s because inflation is low and they don’t want to be passive in imposing more restrictions,” Blitz said.
“If you think about it from a political perspective, which is inevitable for the United States this year, if they cut rates just because inflation is lower but the economy is still doing well, then ostensibly he re-elects members of (President Joe) Biden’s committee, which ? So, although we all understand the reason why they’re cutting back, because inflation is 3%, not 4%, and so on.
Asked if that was one of the reasons the Fed couldn’t wait too long to cut rates, Blitz responded: “That’s true. That’s why the market has a two-thirds chance of a rate cut in June because that’s They only have until June to make these cuts, and after June the window to do so closes.”
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