On May 1st, Federal Reserve Chairman Jerome Powell reiterated at a press conference after the Federal Open Market Committee (FOMC) that the Fed is leaning toward ultimately cutting interest rates. There is a possibility that the turmoil in the US stock and bond markets will not subside. Photographed in Washington, May 2017 (2024 Reuters/Kevin Lamarque)
[ニューヨーク ２日 ロイター] – U.S. Federal Reserve Chairman Jerome Powell reiterated on the 1st at a press conference after the Federal Open Market Committee (FOMC) that he was leaning toward ultimately cutting interest rates, but U.S. stocks・The turmoil in the bond market may not subside in the future. With the future of inflation uncertain, the market is paying even more attention to economic indicators.
Powell acknowledged the lack of progress toward the inflation target, but said a rate hike was unlikely. There was a certain sense of security in the market as inflation data exceeded expectations for the third consecutive month and expectations of an interest rate hike 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 announced, there is a risk that interest rate hike expectations will rekindle and stock and bond markets will be further disrupted. be.
Price movements in the stock and bond markets on the 1st highlighted nervous investor sentiment. 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 nearly 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 continue to stay high? “We will see whether there is a possibility that interest rate hikes 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 further reduced. The market currently expects a 35bp rate cut by the end of the year, but as of January this year, a rate cut of more than 150bp 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 steepest decline since September of last year, as expectations for interest rate cuts receded. The 10-year bond yield has risen 70 basis points since the beginning of the year.
“Market expectations are swinging from one extreme to the other,” said Paul Mielcharski, head of global macro strategy at Brandywine Global. He said that ultimately there will be a bigger rate cut than expected and that he is overweight five-year and seven-year government bonds.
“Markets are understandably a little more cautious. We’re waiting for data that supports the Fed’s basic view that inflation will fall to 2% without a recession.”
Some are concerned that the time is running out for a rate cut before the end of the year.
Brelina Urch, chief U.S. 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, how much more can we become convinced that deflationary pressures will arise?” and “I don’t think the inflation trend will reverse soon enough.” Ta.
On the other hand, there are concerns that high interest rates will soon begin to put pressure on some domestic companies.
Jonathan Duensing, head of U.S. fixed income at Amundi US, said he favors investment-grade corporate bonds because prolonged high interest rates could put stress on lower-rated companies.
He was also bullish on U.S. Treasuries, noting that a flight to quality would provide support “if the economy stalls in the future.”
However, investors have not completely given up hope for a rate cut.
Tony Welch, chief investment officer at Signature FD, said the main reason for this year’s acceleration in inflation is the rise 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 that (the Fed) is right. I’m confident that they’re predicting the direction of inflation correctly,” he said.
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