{"id":12991,"date":"2024-02-07T13:41:43","date_gmt":"2024-02-07T13:41:43","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12991"},"modified":"2024-02-07T13:41:43","modified_gmt":"2024-02-07T13:41:43","slug":"fed-changes-mind-on-rate-cuts-what-does-that-mean-for-investors","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/fed-changes-mind-on-rate-cuts-what-does-that-mean-for-investors\/","title":{"rendered":"Fed Changes Mind On Rate Cuts\u2014What Does That Mean For Investors?"},"content":{"rendered":"\n

Darren B. from Tigard, OR asks:<\/em> Hey Mitch, I\u2019m not feeling so great about interest rate cuts in 2024. With the jobs report from last week and given the Fed\u2019s comments from a recent meeting, it seems like March cuts are off the table. Isn\u2019t a big part of the bull case in 2024 because of rate cuts? What if they don\u2019t come? Thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for sending your question, Darren. I think you\u2019re right to bring attention to the potential risk of fewer-than-expected interest rate cuts. But I would frame this risk a bit differently \u2013 not as a potential death knell for the bull market, but as a potential avenue for short-term equity market volatility and possibly a correction in 2024.1<\/sup><\/p>\n\n\n\n

In other words, the economy and equity markets don\u2019t need<\/em> a certain amount of rate cuts to perform well in 2024, in my view. However, disappointment about the trajectory of interest rates could certainly cause some short-term turbulence, and I would not be surprised if that\u2019s what we saw this year.<\/p>\n\n\n\n

As you point out in your question, fundamentals continue to suggest that the economy is managing the higher interest rate regime just fine. The Labor Department reported last week that the U.S. economy added 353,000 jobs in January, which was about double what economists had forecasted and marked the best month of jobs growth in a year.<\/p>\n\n\n\n

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Nonfarm payroll gains (change, thousands of persons)<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

In the Federal Reserve\u2019s first policy meeting held last week, the central bank reiterated that it was thinking about when to cut rates \u2013 but also signaled a cut was by no means imminent. In Chairman Jerome Powell\u2019s words, \u201cI don\u2019t think it\u2019s likely that the committee will reach a level of confidence [to cut rates] by the time of the March meeting.\u201d<\/p>\n\n\n\n

To place even more emphasis on the low likelihood of an interest rate cut in March, Chairman Powell gave a February 4 interview on \u201c60 Minutes\u201d where he struck a tone of caution about starting the process of reducing interest rates. Powell repeated the view that the Fed does not need to wait until inflation falls to 2%, but he also hedged by saying the central bank is still looking for signs that inflation\u2019s decline is \u201csustainable.\u201d<\/p>\n\n\n\n

The market response was fairly swift, with traders scaling back their bets not only for March rate cuts but also for May rate cuts. I would argue the market has been far too optimistic about the size and frequency of rate cuts for a long time, so I would expect some corrective action as expectations more closely align with reality.<\/p>\n\n\n\n

But my bottom line when it comes to interest rate policy in 2024 is that if rates stay high because the economy is strong \u2013 and not because inflation is increasingly stubborn \u2013 then the bull case should remain intact. In other words, it\u2019s a year where I think economic and earnings growth matter more than whether the market gets what it wants in terms of Fed policy.<\/p>\n\n\n\n

I recommend that investors make the most of these uncertain times. To give you insight into some of the positives, I am offering all readers our guide, Using Market Volatility to Your Advantage4<\/sup><\/a><\/span><\/strong>, which includes insights on:<\/p>\n\n\n\n

\u2022 How market volatility can \u201cshake up\u201d complacent investors
\u2022 Potential bargains that may be uncovered through turbulence
\u2022 Why volatility may help prevent overheating and market \u201cbubbles\u201d
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\u2022 Plus, more ways you may be able to benefit from a volatile market<\/p>\n\n\n\n

If you have $500,000 or more to invest, download this free guide today by clicking on the link below.<\/p>\n","protected":false},"excerpt":{"rendered":"

Rate cuts were widely expected in 2024, but now the Fed signals that they will be delayed. Mitch looks at what this means for the market in months ahead. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12991","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12991","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12991"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12991\/revisions"}],"predecessor-version":[{"id":12994,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12991\/revisions\/12994"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12991"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12991"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12991"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}