To investors,
All eyes in financial markets are on the September interest rate decision from the Federal Reserve. Investors have been convinced interest rate cuts were right around the corner at various times throughout the year, but recent economic data has finally driven consensus agreement for September.
Kalshi, a leading prediction market for economic data, shows an 88% chance that the Fed will cut rates by 25 basis points in approximately one month.
But here is the thing — no one actually knows what is going to happen. It is impossible to predict the future, especially when Fed Chairman Powell is unlikely to know what he is going to do yet too.
The current data suggests the Fed should already be cutting interest rates. It would only take one or two economic reports full of bad data to change that outlook though. When Powell gives his speech this week from Jackson Hole, I would not expect him to commit to any specific decision.
It is true that the Fed likes to signal their future moves and decrease the surprise to market participants. But there is too much time, and enough opportunity for economic data to change, that Powell is more likely going to suggest that we are getting closer to an interest rate cut without confirming the September timeline.
Regardless of what Powell says this week, stock market investors are positioning themselves to benefit when cheaper money starts flooding into the market.
Bloomberg’s Jess Menton points out that over $3 trillion has been added to the S&P 500 since the August market low.
Menton goes on to point out an interesting data point related to the annual Jackson Hole meeting in relation to stock volatility:
“A Fed chair’s speech at Jackson Hole typically isn’t a big catalyst for the stock market unless it comes before a crucial shift in monetary policy — like now. Since 2000, the S&P 500 has climbed 0.4% on average in the week following the gathering, data compiled by Bloomberg Intelligence show.
It’s Powell’s appearance at Jackson Hole in August 2022, when he warned that the Fed would need to keep monetary policy restrictive to battle inflation, that’s still fresh in traders’ minds. Stocks plunged 3.4% that day and lost another 3.3% in the week following his remarks.”
Jerome Powell is not the only thing to pay attention to this week. Reports are coming out that economic data revisions are inbound, which will put the existing situation in a less ideal position.
“On Wednesday, the Bureau of Labor Statistics will downward revise jobs for the April 2023-March 2024 period by up to 1 million. This means that all "beats" recorded in the past year will have been misses and the US job market is in far worse shape than the admin would admit.”
We won’t know if these revisions actually happen for a few days. This is just a rumor at the moment, but it would follow the trend of California making major revisions a few weeks ago which wiped out all job growth in the state for 2023.
So here is the situation — we have increasing odds that the economy is not as strong as everyone thinks it is. Investors are salivating over an interest rate cut. And we have plenty of room to cut rates without ending up with 0% rates again.
Based on what we know now, the rate cut will happen in September. It will be 25 basis points, stocks will start to rise into the end of the year, and both political parties will complain about monetary policy changing so close to the election.
Plenty can change between now and September 18th though. For example, the Trump assassination attempt was only five weeks ago. That feels like a lifetime away. Let’s see what happens in the next four weeks.
Hope you all have a great start to your week. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Founder & CEO, Professional Capital Management
Phil Rosen, the Co-Founder of Opening Bell Daily, and Anthony Pompliano, CEO of Professional Capital Management, discuss the economy, inflation, volatility in the stock market, and future outlook for financial assets.
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Anthony Pompliano Explains Why Price Controls Are A Bad Idea
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Are Interest Rate Cuts Going To Happen In September?