On May 1st, Federal Reserve Chairman Jerome Powell reiterated in a press conference after the Federal Open Market Committee (FOMC) that the Fed is leaning toward cutting interest rates eventually There is a possibility that the turmoil in stock markets will not and the US bond subsided. Photograph taken in Washington, May 2017 (2024 Reuters/Kevin Lamarque)
[ニューヨーク ２日 ロイター] – The Chairman of the Federal Reserve of the United States Jerome Powell reiterated on the 1st in a press conference after the Federal Open Market Committee (FOMC) that he is leaning towards cutting interest rates eventually, but the stocks of the United States. . With the future of inflation uncertain, the market is paying even more attention to economic indicators.
Powell acknowledged the lack of progress towards the inflation target, but said a rate hike was unlikely. There was a certain sense of security in the market, as inflation data was higher than expected for three consecutive months and expectations of an interest rate rise were emerging. See more
However, some investors said the market was unlikely to take Powell’s comments at face value. After the dovish turn in December last year, inflation and employment indicators have exceeded expectations, and if strong economic indicators continue to be published, there is a risk that interest rate rise expectations will be rekindled and further disrupted stock and bond markets.
Price movements in the stock and bond markets on the 1st highlighted the nervous feeling of investors. The S&P 500 index rose more than 1% during Powell’s press conference, but then turned lower and ended the day down 0.3%. The yield on 10-year government bonds fell by almost 10 basis points (bp).
Steve Hooker, portfolio manager at Newfleet Asset Management, said: “If the Fed is going to rely on data to drive policy as it has claimed, the market will scrutinize all the data. Will interest rates remain high? “We will see if there is a possibility that interest rate increases will be discussed again.”
The first important indicator is the employment statistics on the 3rd. If the labor market is stronger than expected, the expected rate cuts this year could be reduced further. The market is currently expecting a 35 basis point cut in interest rates by the end of this year, but in January this year, a rate cut of more than 150 basis points was priced in.
A variety of data will be released later this month, including inflation statistics and retail sales figures.
The S&P 500 index in April recorded its biggest drop since September last year as expectations for interest rate cuts receded. The 10-year bond yield has risen 70 basis points since the start of the year.
“Market expectations are swinging from one extreme to the other,” said Paul Mielcharski, head of global macro strategy at Brandywine Global. The bank said it would eventually cut interest rates more than expected, and was overweight five-year and seven-year government bonds.
“Understandably, markets are a bit more cautious. We are waiting for data to support the Fed’s basic view that inflation will fall to 2% without a recession.”
Some are concerned that time is running out to cut the rate before the end of the year.
Brelina Urch, chief US economist at T. Rowe Price, said the Fed would need at least three months of worse-than-expected economic data to feel confident about cutting rates.
“If the slowdown in private rents does not show up in (consumer price) statistics, to what extent can we become more confident that deflationary pressures will rise?” and “I don’t think the trend will inflation reverses soon enough. ”House.
On the other hand, there are concerns that high interest rates will soon start to put pressure on some domestic companies.
Jonathan Duensing, head of US fixed income at Amundi US, said he favors investment-grade corporate bonds because prolonged high interest rates could strain lower-grade companies.
He was also supportive on US Treasuries, noting that a flight to quality would provide support “if the economy slows down in the future.”
However, investors have not completely given up hope for a rate cut.
Tony Welch, chief investment officer of Signature FD, said that the main reason for the acceleration of inflation this year is the increase in commodity prices due to the situation in the Middle East.
Crude oil prices fell to a seven-week low on the 1st due to an unexpected increase in US inventories and hopes for a ceasefire agreement in Gaza.
Welch is bullish on small-cap stocks, saying they could benefit from lower interest rates if the economic outlook remains positive.
“I’m confident (the Fed) is right. I’m confident they’re predicting the direction of inflation correctly,” he said.
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