Wall Street Strategists Caution Against Immediate Rate Cuts
Wall Street strategists are expressing caution amidst market optimism, noting that immediate rate cuts are not likely to occur. The optimism is based on the belief that the US is heading towards a “soft landing” and a “new growth era,” drawing parallels with the 1994-1995 period. However, strategists at Macquarie warn against overstating this analogy, pointing out that there are significant differences in macro conditions between 2023-2024 and 1994-1995. They highlight that the recent cycle has seen more tightening from the Federal Reserve, leading indicators are weak, and there is no “peace dividend” to enjoy, among other differences.
Macquarie: Differences between 2023-2024 and 1994-1995 Highlighted
Macquarie strategists emphasize the differences between the current macro conditions in 2023-2024 and the period of 1994-1995. While there is optimism regarding a “soft landing” and a new growth era, the strategists argue that the backdrop and circumstances are radically different. They highlight that the Federal Reserve has tightened more in the recent cycle, leading indicators are chronically weak, and there is no “peace dividend” to enjoy. These differences suggest that the outcome may not be the same as in the 1990s.
FOMC Minutes to Reveal Depth of Policy Rate Cut Discussions
The minutes of the Federal Open Market Committee (FOMC) meeting, due to be released later today, are expected to shed light on the depth of discussions about policy rate cuts. The minutes will be closely watched by investors who are eager to understand the Fed’s stance on rate cuts. While Federal Reserve Chair Jay Powell hinted at a robust discussion on cutting rates in December, other Fed speakers have since indicated that rate cuts are not imminent. The release of the FOMC minutes will provide further insights into the Fed’s deliberations.
Expectation of Imminent Rate Cuts May Lead to Disappointment
Wall Street strategists at Macquarie anticipate that investors may be disappointed with today’s FOMC minutes. They believe that traders may feel a bit of disappointment as the minutes are expected to reveal that rate cuts are not imminent. The strategists argue that the Fed needs to first move towards a neutral policy bias and then an easing bias before cutting the policy rate. Therefore, the expectations for immediate rate cuts may not be met, leading to disappointment among traders.
Citi Economists: Fed Officials Unlikely to Be Convincingly Hawkish
Citi economists, including Andrew Hollenhorst, agree that the FOMC minutes will likely attempt to follow post-FOMC speakers in “pushing back” against markets pricing very near-term rate cuts. However, they doubt that the Fed officials will convincingly adopt a hawkish stance. The economists point out that Fed policymakers are laying the groundwork for cuts later this year, albeit not as early as the markets are pricing. Additionally, they believe that Fed officials would prefer looser financial conditions rather than rapid tightening. This suggests that the Fed officials may not be as hawkish as some market participants anticipate.
Analyst comment
1. Wall Street Strategists Caution Against Immediate Rate Cuts – Neutral news. The market may not experience immediate rate cuts due to differences in macro conditions.
2. Macquarie: Differences between 2023-2024 and 1994-1995 Highlighted – Negative news. The current macro conditions are different from the past, suggesting a different outcome.
3. FOMC Minutes to Reveal Depth of Policy Rate Cut Discussions – Neutral news. Investors are eager to understand the Fed’s stance on rate cuts.
4. Expectation of Imminent Rate Cuts May Lead to Disappointment – Negative news. Traders may be disappointed as the minutes may reveal that rate cuts are not imminent.
5. Citi Economists: Fed Officials Unlikely to Be Convincingly Hawkish – Neutral news. The Fed officials may not adopt a strongly hawkish stance, suggesting a preference for looser financial conditions.
