Source: shutterstock.com/Anastasiia Skorobogatova
The Federal Reserve, in all its wisdom, doesn’t hold a crystal ball illuminating the way forward any better than you or me. Repeat after me: predicting the future, especially concerning inflation, is akin to reading tea leaves in a thunderstorm. It’s quite the chaotic system we whirl in, replete with more variables than a Rubik’s cube, defying mere mortal forecasting.
For a recent lesson in humility, cast your mind back to the rate cut circus of 2024. Remember how Fed Chair Jerome Powell had the markets convinced that six rate cuts were in the offing? Yet, faster than a Tesla off the line, the scenario flipped. Suddenly, the specter of rate hikes loomed. Yes, dear investors, brace yourself for the Fed to actually increase rates this year.
The Unlikelihood of a Fed Rate Cut in 2024
Why, oh why, would the Fed snip rates when financial waters flow as easily as Niagra? The bond market’s current aria sings of plentiful liquidity. Default risk is but a ghost, and economic indicators strut their stuff. Lower rates under these conditions? Mad as a hatter’s tea party.
It seems many have forgotten a key fact: the Fed’s a tagalong, reacting to the tunes of financial markets. Powell’s crystal ball seemingly fogged, the Fed risks stoking inflation to a blaze by cutting rates when junk debt barely flinches at default risk. The bond market holds the reins; the Fed merely the bridle. And right now, whispers rustle that the Fed might stir the pot enough to unnerve high-risk debtors.
To cool inflation’s heels, default risk must raise its hackles. Fear must permeate. Liquidity stiffens. None of these apparitions dance on the horizon, signaling further rate hikes in the distance. Failure to act may leave us dancing with a genie that refuses to be bottled.
Disclaimer: Michael Gayed held no positions in the securities discussed at the time of publication. The viewpoints disclosed here are those of the author and adhere to the guidelines of InvestorPlace.com.
