Only 1 Rate Cut In 2024? What Does The Latest Fed Guidance Really Mean? | Axel Merk
Jun 13, 2024
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Financial analyst Axel Merk joins the host to dissect the Federal Reserve's latest guidance, highlighting the optimistic outlook on inflation and the market's response. They discuss the Fed's shift in rate cut forecasts for 2024 and 2025, the impact on Treasury yields, and the necessity for clearer communication from the Fed for market stability.
Fed's more optimistic inflation outlook led to a reduced rate cut forecast for 2024.
Market volatility raises the need for clearer forward guidance in Fed's decision-making process.
Uncertainty in FOMC economic forecasts highlights complex data-driven policy decisions.
Deep dives
Fed's Powell Press Conference Reflection
The press conference with Jerome Powell highlights concerns about Fed's decision-making process, characterized by a lack of consistent principles. El Airian's and the speaker's remarks underscore the need for more forward guidance to provide a framework for policy decisions. The discussion points out the market's volatility and the challenge of interpreting new data points impacting Powell's statements.
Key Takeaways from Powell's Statements
Powell announced no changes to the Fed funds rate or the pace of QE in the recent meeting. Noteworthy is the Fed shifting its rate cut schedule, delaying one cut to 2025. Although Powell mentioned progress on inflation, he emphasized cautious rate adjustments based on data observation, signaling limited rate cuts this year and potential adjustments based on economic progress.
Dot Plots and Economic Projections Uncertainty
The discussion delves into the uncertainty surrounding FOMC officials' economic forecasts, particularly highlighted by the dispersion in rate cut projections. Powell's mention of forecasts made pre-CPI data release underlines the challenge of interpreting economic data. The nuances in economic projections reveal the complexity of Fed's decision-making processes and their reliance on a variety of data points.
Implications of Housing Affordability and Monetary Policy
The conversation explores the impact of rate cuts on housing affordability, questioning the Fed's potential role in exacerbating housing market dynamics. Powell's response to housing affordability inquiries illustrates the complexities of economic factors influencing market dynamics. The dynamic between rate cuts and housing affordability reflects broader considerations in assessing monetary policy's real-world implications.
Market Insights on AI Investment and Risks
The potential risks associated with the burgeoning AI market are discussed, highlighting the significant investments in AI technologies by leading companies like Nvidia. The conversation touches upon market optimism and potential risks of inflated valuations, pointing to historical examples like the tech bubble of the early 2000s. The importance of disciplined investment strategies and prudent risk assessment in volatile market conditions is emphasized.
In its latest guidance released this week, the Federal Reserve is holding interest rates steady for now. The Federal Funds rate will remain unchanged at 5.25%
But the Fed did lower its rate cut forecast for 2024 to just 1. And it raised its 2025 rate cut expectations upwards from 3 to 4.
It largely did this because its outlook on inflation is notably more optimistic than in previous months.
Wall Street certainly liked what it heard, with the S&P jumping over 1% on the news and Treasury yields falling.
But does this slightly more optimistic view actually change anything?
To find out, we sat down right after Fed Chair Jerome Powell's press conference with Axel Merk to get his real-time assessment.
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#federalreserve #interestrates #inflation
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