Fed cuts interest rates: Wall Street is starting to have buyer’s remorse
Wall Street celebrated the Federal Reserve’s half-point interest rate cut last month by sending stocks to new record highs, but blockbuster jobs report on Friday caused doubts to creep in.
Analysts at Bank of America and JPMorgan, one of the few banks to correctly predict a half-point cut last month, lowered their expectations for the November policy meeting and now sees a quarter-point cut instead of 50 points other basics.
But others on Wall Street have warned that the situation requires the central bank to be even more cautious because further easing could reinvigorate the still-strong economy, threatening to push up inflation. high again.
For example, veteran market forecaster Ed Yardeni told Bloomberg Friday that the previous half-point cut was unnecessary and that no further cuts were needed, adding that “I think some Fed officials regret doing so.”
Ian Lyngen, head of US rates strategy at BMO Capital Markets, said that while he still expects a 25-point cut next month, he warned that if the next jobs report and inflation data too hot, then the Fed may delay cutting interest rates. about being more lax.
“If anything, the jobs update suggests that the Fed may be reconsidering its caution in cutting interest rates in November — although a pause is not the case,” he wrote in a note. our version”.
Lawrence Lindsey, former Fed official and director of the National Economic Council during the George W. Bush administration, told CNBC on Friday that policymakers need to look at how their rate cuts have led to a spike in 10-year Treasury yields, saying it could be a sign they are doing things wrong something.
“So I suspect they will probably have to be approved at the next meeting,” he added.
He warned that further interest rate cuts would confirm tough inflation expectations that are underpinning workers’ need for big pay rises in these countries. Boeing and East Coast ports.
Indeed, leading economist Mohamed El-Erian has said “Inflation is not dead” and that the Fed must remain vigilant about price stability and the job market rather than focusing solely on supporting full employment.
Similarly, former Finance Minister Larry Summers posted on X that nominal wage growth, the main driver of inflation, does not appear to be decelerating and that the jobs report suggests any additional interest rate cuts require a cautious approach.
“With the benefit of hindsight, the 50 basis point cut in September was a mistake, although not a major one,” he wrote. “With this data, ‘no landing’ as well as ‘hard landing’ is a risk that @federalreserve must take into account.”
Apollo chief economist Torsten Sløk, who is steadfast in his view that interest rates will stay high for longer, said in a note on Saturday that the Fed does not need to cut further, citing the strong economy, low interest rates that consumers have previously locked in, fiscal spending and AI-related business investments.
Even before the jobs report, other data showed that the Fed’s interest rate cut last month was having a significant impact.
For example, the Institute of Supply Management’s service activity index was stronger than expected in September.
“Businesses have begun to see activity and orders rebound as the Fed releases the brake,” Comerica chief economist Bill Adams said in a note Thursday.
