LPL Research’s Weekly Market Commentary
April 21, 2025, Revising Our S&P 500 Target Amid a Storm of Uncertainty
April 14, 2025, Decent Chance Stock Market Bottom Is in but Far From Certain
April 7, 2025, Tariff Turmoil: Where Do We Go From Here?
March 31, 2025, Tariff Uncertainty Facing Stocks to Start Clearing Soon
The moment is likely upon us!
Based on information available as of this writing, it appears almost certain that the Federal Reserve will initiate its first interest rate reduction cycle since July 31, 2019, in September.
Recent comments from Federal Reserve governors indicate that they believe the downward trajectory of inflation is sustainable which gives them the flexibility to pivot their policy to focus on ensuring full employment.
The financial markets have been pining for this moment for almost a year now. In their minds, cheaper money is better money when borrowing to refinance current debt, purchase another company, or finance capital expenses. They are not wrong – just ask the millions of people who locked in record low mortgage interest rates a few years ago.
The down side of Federal Reserve rate cuts is that the interest rates you are currently earning on your savings accounts and certificates of deposit will likely decline from here.
With a rate cut on September 18 an almost certainty, bond traders are now trying to predict the pace of future interest rate cuts. This is likely “data dependent,” as the Federal Reserve has repeatedly stated over the last several years.
If inflation stops going down and unemployment stops going up, the Federal Reserve would likely suspend future rate cuts until it is confident this trend would reverse. Conversely, if unemployment accelerates and the annualized inflation rate declines further, the Federal Reserve may accelerate its rate cutting.
As of this writing, bond traders think the most likely scenario is a .25% reduction in overnight lending rates on September 18 and November 7 with at least a .25% reduction on December 18.