Here’s Why Odds of a June Rate Cut Are Falling
The Fed isn’t poised to cut interest rates — and we’re not likely to see that near-term.
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If you’ve been reading our comments or listening to this week’s Stocks & Markets Podcast earlier today, then you were not surprised when the Fed opted to leave interest rates unchanged following their latest policy meeting. You also weren’t surprised by the answers Fed Chair Powell supplied to press conference questions that squarely indicated the Fed needs to see more data before contemplating any rate-cut decisions.
Reading between the lines and noting recent ISM PMI data as well as comments from consumer product companies about price increases and the pending port supply shortages, we are likely to see May inflation data tick higher compared to April. That May data will be coming in early to mid-June, which means the Fed will see it before it concludes its next policy meeting on June 18.
In discussing why the Fed is more focused on hard economic data than sentiment, or as it’s referred to as "soft data," Powell noted the Fed is looking to see what the impact is on both inflation as well as the employment market, including the unemployment rate. What will be tricky for the Fed and the market is if we see both inflation metrics and the unemployment rate stepping higher.
Inflation data found in the monthly data from ISM have moved meaningfully higher the last few months, but we’ve also seen a sharp drop in oil prices since the early January peak. That is flowing through to the gas pump, but we have yet to see the impact of tariff-related price increases and supply chain issues flow through the data. This could take some time, and we may not see the full effect until after the May inflation data, which would come after the Fed concludes its next policy decision.
For now, this means we will continue to follow the data and update our thinking about rate cuts based on what that tells us. As of now, it’s hard to see the Fed delivering a rate cut at its June meeting, and it will be even more difficult if upcoming April CPI and PPI data echo what we saw in the April ISM pricing data.
At the same time, we realize that we have yet to see the announced DOGE-related job-cut figures in Challenger Job Cuts reports or show up in monthly employment reports. As such, we will continue to follow the data, update our thinking as needed and position the Pro Portfolio accordingly.
