The Federal Reserve has finally pulled the trigger on its first rate cut of the year, shaving 25 basis points off the Fed funds rate to a range of 4.00–4.25%. That is the lowest level since last November and, not coincidentally, after months of nudging (or relentless tweeting) from President Donald Trump for looser policy.
The move was widely expected but the story does not end there. Fed chair Jerome Powell, ever the cautious referee, reminded markets that inflation is not ready to exit the stage just yet.
While job gains are slowing and unemployment risks are creeping higher, inflation has also been picking up. Powell put it bluntly, a one-time price surge is one thing but if inflation overstays its welcome, the Fed has a problem on its hands.
Who cares right? Trump wants rates driven toward 0% (artificially), if necessary regardless of the inflationary aftershocks.
The FOMC’s consensus points to two more cuts this year, though the committee is about as united as a family at a reunion dinner. Well, everyone is technically together but not quite in full agreement.
Still, Powell hinted that softer labor markets could help cool inflation pressures. In other words, fewer job gains might actually be the Fed’s unlikely ally.
So where does that leave investors? There is money sloshing around everywhere, tons of it. With rate cuts on the table, deregulation running wild, and cash hunting for a home, the setup looks undeniably bullish.
I remain a long-term bull.