From Morningstar: 2024-06-11 04:53:00

Investors are reevaluating their expectations for Federal Reserve interest rate cuts following stronger-than-expected jobs data. Treasury yields rose, and bond futures adjusted. Traders now see equal chances of rates holding steady or decreasing at the September meeting. Despite concerns, strategists believe the bull market may continue to thrive, with optimistic gains in the second half.

The Federal Reserve is expected to maintain rates at 5.25%-5.50% at next week’s meeting, following robust jobs data. Analysts predict the Fed will stay cautious until inflation reaches the 2% target. Economic data will provide further insight into the possibility of future rate cuts, with the release of the May CPI report bringing clarity.

Investors have adjusted their expectations for interest rates over the year. While initially anticipating multiple cuts, recent data suggests a more moderate approach. The CME FedWatch tool shows increasing chances of one or two rate cuts by December. However, the Fed’s June economic projections could influence these expectations, with potential implications for markets.

Economists suggest that a soft landing for the economy would be ideal for stock investors. Growth is predicted to slow but remain positive. This scenario could lead to temporary pressures on corporate profits but is not worrisome in the long run. Market strategists anticipate that moderate, positive growth would benefit equities.

If the Fed does not cut rates in 2024, stocks may still perform well due to strong profit growth and economic stability. However, bond prices may be affected negatively by high interest rates. The bond market could experience volatility as investors wait for rate clarity. Economic growth moderation could impact stock performance.

An economy overheating due to sticky inflation could cause issues if growth remains strong. The Federal Reserve targets a 2% inflation rate, but PCE inflation was at 2.7% in April. If inflation stays near 3%, it could lead to economic challenges. Economic scenarios vary, with potential risks and opportunities depending on inflation and growth rates.



Read more at Morningstar: What This Week’s Federal Reserve Decision Means for…