The economy has made it to the second half of 2019 without any change in federal interest rates. This stability has benefited the market, contributing to a surge of investor confidence and a rally that has persisted for most of the year. Of course, there are many who still want to see a rate cut this year, and it’s likely that there will be one before December.
Job report data shows that the economy is still strong, and business earnings didn’t drop significantly like they were predicted to. Overall, the current economy is a great place for investors and businesses.
Quarter Point Fed Rate Cut is Likely
After a weak May report, job data for June was surprisingly upbeat. 224,000 jobs were created last month, beating the analyst forecast of 170,000 by a significant margin. This shows that even though the economy is heading towards the end of its growth cycle, there’s still plenty of life left in it.
This is great news, but it’s not going to benefit those who are expecting a healthy rate cut this year. Economists believe that the positive data effectively eliminates the chance of a half-point cut. One prominent economist even said that it would be “hallucinatory” to expect anything more than a cut of 25 basis points.
The Fed could use a mild rate cut as an insurance policy of sorts and will likely wait until 2020 before considering any larger cuts.
Fed Chair Will Testify in Congress
Federal Reserve Chairman Jerome Powell will meet with lawmakers later this week to talk about the central bank’s current monetary policy. His testimony will shed light on the Fed’s outlook, and it could offer hints around any future rate cuts.
At this stage, economists believe that no large cuts will come until early next year. If the economy continues to slow, there could be two rate cuts between January and July 2020.
Some headlines suggest that the economy is currently in a weak position. This simply isn’t the case. While it’s not expanding at the same rate that it was in 2018, it is still moving in a positive direction, and this means that the Fed might not have to do much to sustain it.
While this might not be the news that investors want to hear, it’s still good news, because a strong economy can lead to better business earnings and returns in the form of dividends and stock price growth.
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