Ben Emons, Founder and CIO, FedWatch Advisors, breaks down the Fed’s latest rate cut, what it signals about the economy, and how investors should read the market’s next move.
Transcript:
Caroline Woods: Joining me now, Ben Emons, Founder and CIO of FedWatch Advisors. Ben, thanks so much for being here.
Ben Emons: Good morning, Caroline. It’s good to be on. Thank you.
Caroline Woods: So Ben, the Fed cut interest rates for a second time this year. They’re now below 4% for the first time since what, late 2022 I believe. How significant is the cut for both the economy and for the stock market?
Ben Emons: Oh it has significance because, the Fed is alert about what’s going on in the job market, but it’s not a good picture. You see each day new layoff announcements. So I do think this Fed has learned about that. The economy may be having slowdown here why these layoffs happen. At the same time lowering rates is always a stimulus to the stock market. Maybe not today so much, but it generally is. I think that people are also looking at this saying, OK, if the Fed stays ahead of the problem, it is just simply helping the economy by lowering rates, then that’s ultimately good for the stock market. So it should be it should be a positive outcome.
Caroline Woods: Ultimately, after we work out all these earnings that we’re going through, how would you rate the state of the economy right now. Does this cut signal optimism that inflation is not a target but coming down, or does it signal concern to you?
Ben Emons: Well, it has actually a two sided message, so to speak. Meaning you’re right that this inflation is still a bit high, but it is definitely on the track. Still down by the Fed can lower rates because if it were to go up too much inflation, then the Fed could not really do anything. But this is also a fact that it is cautious about where we’re heading, because, you know, it does show that the unemployment rate is ticking up. And, you know, we don’t have the official data currently, but there’s some private estimates out there that show that there’s a bit of a movement higher in jobless claims and that kind of metric. So I think that’s what the state of the economy bit is. We got softness, but not like an outright contraction or weakness. I think as much as the real GDP data that Atlanta Fed puts out every day or every other day shows a kind of a robust number, like almost 4% growth. There’s some weakness underneath. And I think that is where we’re currently at. And this probably has a lot to do also with the government shutdown. Right it causes uncertainty. So it keeps people on the sidelines. I think that kind of is where we’re heading for now until this shutdown is resolved.
Caroline Woods: Well, Powell did spook markets with comments about really having a lack of conviction of a December rate cut. It seems like we’re seeing a rebound today. But what’s it going to take for the Fed to cut again?
Ben Emons: I think what it’s going to take is that once they get access to the official data, because I think that was one reason why Powell mentioned yesterday these words of like far from it. It’s not a conclusion to cut rates again in December. Far from it. There’s kind of a strong message I think. But I think it has to do with that. If we don’t have good visibility here of where the economy exactly is, you can’t make an informed decision. So that is one reason. But the other reason would be related is that if that data does become available and it shows that we have more weakness in the jobs market coming through, as maybe these layoffs seem to be indicating, then that would be for the Fed. Definitely a reason to lower rates. So it’s still, it’s still out there right. It’s in it. We’re not we’re not done yet. It’s still I don’t think 6 to eight weeks from now that next meeting. So let’s see what happens. But I think the Fed has made a firm decision on lowering rates 100% in December.
Caroline Woods: What do you think’s going to happen come December and come next year when it comes to rate cuts?
Ben Emons: Well, I have always been of the view, Caroline, that we do deal with an economy that gets a fair bit of push in the future, meaning we’re getting stimulus from the big beautiful bill. That’s Stephanie adding stimulus to the economy. We obviously have now decline in interest rates has happened this year. So that is stimulating. We’re getting some resolutions and resolve of the trade disputes that we’ve seen. So the tariffs are not going to go as much up as much anymore. Maybe go a little bit down. So that will help. And then lastly, which is really important is, of course, not only the spending on I the proceeding, but the investment that is going to already taking place or going to take even more place that particularly the investment.
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