Comments by Bolvin Wealth Management Group, NorthEnd Private Wealth, Allianz Investment Management, Harris Financial Group and Comerica Wealth Management, about the Feds rate cut decision.
Gina Bolvin, President of Bolvin Wealth Management Group (Boston, MA)
Bring back the briefcase indicator!
Powell cut by .50 because the SEP projects inflation to fall to 2.1% yet unemployment will rise to 4.4% and may jeopardize a soft landing. It’s a balancing act between the Fed’s two mandates. A .50 basis point cut is justified and still keeps rates restrictive, as well as the Fed keeps enough powder dry in case of an emergency.
Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth (Greenville, SC)
50bps!!!!!! On what basis was this decision made? The market initially loved the move but has since reversed backwards. There isn’t much to take away from the announcement other than those cowards bowed to political pressure, because perhaps you’ve noticed that inflation is still above target, markets are at all-time highs, Real Estate is still at all-time highs, employment/GDP are still good but we need to cut 50bps because……….well I guess we’ll let Powell fill in the blank at his presser.
I would be watching for a major reversal to the downside post presser because they could not have come to this decision without seeing some very disturbing economic data coming down the pipe.
Charlie Ripley, Senior Investment Strategist for Allianz Investment Management (Minneapolis, MN)
Fed Meeting Recap:
Prior to the FOMC meeting, market participants were clearly bifurcated on whether the Fed should cut 25 basis points or 50 basis points, which ultimately meant there was going to be disappointment from some investors regardless of the outcome. Due to the wider range of differing views, this meeting was more difficult for the Fed to manage as forward guidance through the dot plot was viewed just as important as the actual magnitude of the initial rate cut. By cutting 50 basis points and signaling a more dovish stance though 2025 dot, the committee is signaling the policy stance prior to the meeting was a bit long in the tooth relative to the current economic conditions.
Our Take:
While we all can debate the warranted speed of rate cuts out of the gate, the reality is the direction of travel for policy rates is lower and getting to a more neutral stance on rates should arguably be the finish line of this race. The track record from this Fed has shown they haven’t historically been the fastest out of the gate, but they have exhibited the ability to dial up the pace when deemed necessary. Against a backdrop where the strength of the economy has been difficult to gauge, the move to cut 50 basis points of the gate from the Fed seems to be appropriate as the pace of rate cuts on the path to neutral can be adjusted accordingly. With a better assessment on how the Fed is going to run the rate cutting race, investors can focus on the bigger obstacle on the horizon, the upcoming US election.
Jamie Cox, Managing Partner for Harris Financial Group (Richmond, VA)
The Fed had the guts to do what needed to be done. I’m surprised, but glad. The Fed is determined to stick its soft landing.
John Lynch, Chief Investment Officer for Comerica Wealth Management (Charlotte, NC)
The Fed was more aggressive than I expected, since 50 basis point cuts are historically associated with crises.
I don’t consider 2% GDP, 4.2% unemployment rate, and 15% profit growth forecasts for 2025 as a crisis. As a result, I’m still skeptical of the extent of expected rate cuts next year.
The spread between 2s and the fed funds rate is the widest in 40+ years, which essentially forced the Fed’s hand.
Clearly they’re more concerned about employment, after spending the last few years on inflation. However, gold hovers near record highs, so the market is still worried over pricing, particularly with surging federal deficits.
Lower market interest rates should help housing and employment.
We look for traditional beneficiaries including small caps, value, cyclical sectors, and the equally-weighted S&P 500 Index to experience tailwinds.