Reduced Federal Reserve interest rates: Opinions from financial experts and economists
The Federal Reserve's decision to cut interest rates by 25 basis points, the first reduction since late 2024, has sparked a flurry of reactions from investors and analysts. The rate now stands at a target range of 4.00%-4.25%.
Bret Kenwell of eToro believes that markets may need a breather but will likely recover, assuming the avoidance of a recession and rising earnings. Meanwhile, Jeff Roach from LPL Financial predicts further rate cuts in October and December, as investors grapple with rising labor market risks.
The Fed's outlook shows another 50 basis points cut is planned by the end of 2025. However, there is no consensus among Fed officials, with nine expecting fewer or no cuts, and nine expecting two cuts. The latter achieves a narrow majority due mainly to a dissenting vote for even larger cuts this year.
Jerome Powell, the Fed's chairman, has dampened expectations for more aggressive rate cuts despite acknowledging heightened employment risks. The rate decision was nearly unanimous, with only the newly appointed Fed governor Miran voting for a stronger cut.
In response to the uncertainty, Luis Alvarado from Wells Fargo Investment Institute suggests investing in intermediate-term bonds (3 to 7-year maturities) to achieve an optimal balance between attractive yields and lower sensitivity to potential stock market risks.
Simon Dangoor from Goldman Sachs Asset Management believes that the Dot Plot suggests the Fed is likely to make additional 25 basis point rate cuts in October and December. However, Ronald Temple von Lazard warns investors not to rely on the "Dot Plot" due to the political uncertainties at FOMC meetings.
Art Hogan of B. Riley Wealth suggests there could be a "Buy the Rumor/Sell the News" reaction in the markets. Meanwhile, Steve Wyett from BOK Financial notes that the muted reaction in stocks and bonds suggests that the rate cut was widely expected.
Christian Chan of AssetMark highlights the risk of trade-induced inflation being more than a one-off event, while Eric Teal from Comerica Wealth Management expects further fiscal measures and a steepening of long-term yields, benefiting value-oriented sectors and small caps.
Ryan Detrick at Carson Group states that the door is open for further mortgage rate cuts this year, but the Fed is more concerned about the cooling labor market than inflation. Gina Bolvin of Bolvin Wealth Management Group states that the Fed's 25 basis point cut is a signal of a weakening labor market and persistent inflation.
Peter Tchir of Academy Securities notes that there is a lot of volatility due to many algorithms trying to digest the information. Dan Siluk from Janus Henderson Investors plays down the significance of the Dot Plot, describing the outlook as "balanced" rather than skewed towards labor market risks.
In conclusion, the Federal Reserve's rate cut has sparked a variety of reactions from analysts and investors. While some believe in further rate cuts, others suggest investing in bonds or anticipate a "Buy the Rumor/Sell the News" reaction in the markets. The overall sentiment remains cautious amid seasonal tendencies and the ongoing uncertainty.
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