Remember when the conversation centered on whether the Fed would raise interest rates or not? That talk has turned 180 degrees, with the financial chattering classes pondering whether a rate cut is imminent. This despite economic growth continuing apace, strong employment levels and interest rates that remain conducive to borrowing—just this week, mortgage rates fell to a near two-year low, sending mortgage applications up almost 27% from the week before. That’s simply not something you’d see from a consumer who’s uncertain about their job prospects or financial outlook—and it’s the consumer above all else that’s fueling ongoing economic expansion.
If the Gulf region is built on a foundation of sand, the economic fundamentals we focus on (earnings, interest rates, economic data) continue to show that the U.S. economy is on bedrock. That may make the elevated prospect for two or more rate cuts from the Fed inside this year seem contradictory. To us, it suggests that tariff actions and trade-war fears, as well as geopolitical and domestic political volatility, are influencing those expectations.
Next week, the Federal Reserve’s two-day meeting will command Wall Street’s attention—all eyes will be on the official statement and subsequent Wednesday afternoon press conference by Fed Chair Jerome Powell. We don’t think a rate cut is coming out of this meeting. But any hint about the Fed’s expectations for future rate cuts could move markets.
Please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.
Please note: This update was prepared on Friday, June 14, 2019, prior to the market’s close.