Seeing better value in small cap and non-U.S. equities in 2nd half of the year, says Joe Amato
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Miami Herald
16 hours ago
- Miami Herald
Goldman Sachs revamps Fed interest rate cut forecast for 2025
The Fed is under fire for its monetary policy decisions this year. Last year, it decided the risks of rising unemployment were greater than the risk of sticky inflation. As a result, it cut interest rates last September, November, and December, shaving a total of 1% off the Fed Funds Rate used by banks to set lending rates on everything from credit cards to mortgage rates. The pivot from rate hikes in 2022 and 2023 to rate cuts was widely forecast, and a big reason behind the S&P 500's epic 24% return in 2024. Most thought the Fed would continue to put its foot on the economic gas pedal, reducing rates in 2025, too. However, that hasn't happened. The Fed has left interest rates unchanged despite rising layoffs and declining GDP growth. Don't miss the move: Subscribe to TheStreet's free daily newsletter What caused the Fed to pause? Tariffs. After the Fed's most recent meeting, where they left rates again unchanged within the 4.25% to 4.5% range, Fed Chairman Powell conceded that uncertainty surrounding the inflationary impact of tariffs had forced it to the sidelines. That decision has drawn sharp criticism from President Trump's administration, who view interest rate cuts as key to propping up the economy and offsetting the drag tariffs may cause. Nevertheless, Wall Street expects that the Fed won't remain sidelined forever. Goldman Sachs, one of the most influential firms, has updated its interest rate cut outlook for 2025 based on the most recent economic Fed has two jobs: low inflation and unemployment. Unfortunately, accomplishing its mission isn't easy. Increasing interest rates slows inflation but raises unemployment, while cutting rates increases inflation but lowers unemployment. Related: Veteran fund manager drops bold July Fed interest rate prediction after jobs shocker The contrary nature of its dual mandate is on full display this year. The Fed's rate hikes in 2022 and 2023 drove inflation from 8% to below 3%. However, they also caused the unemployment rate to increase to 4.1% from 3.4% in 2023. The Fed's cuts last year were designed to strike a balance, propping up the jobs market without fanning inflationary fires. Unfortunately, President Trump's tariffs, including 25% on Canada, Mexico, and autos, plus 30% on China and a baseline 10% tariff on all imports, make it much harder for the Fed to walk the inflationary tightrope. If the Fed cuts more, inflation may reassert itself. If it stays put, the economy may sour and slide into stagflation or recession. There's already evidence that the economy is weakening. GDP shrank 0.5% in Q1, and the Fed and World Bank expect GDP to be just 1.4% in 2025, down from 2.8% in 2024. The particularly tough backdrop is that some Wall Street firms, including Bank of America and Morgan Stanley, expect the Fed to remain sidelined for the rest of this year. Goldman Sachs doesn't share that opinion. It expects that the Fed will turn friendly again, embracing dovish cuts this fall. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 Their economists previously expected the Fed to reduce its Fed Funds Rate twice before year's end. However, they changed that outlook recently, and now expect the Fed to cut rates three times. They altered their outlook based on lower-than-expected impacts from tariffs on inflation so far, plus ongoing question marks in the jobs market. For perspective, while the unemployment rate fell to 4.1% in June from 4.2% in May, a better-than-expected outcome, companies have laid off over 696,000 workers this year through May, up 80% year over year, according to Challenger, Gray & Christmas. Goldman Sachs expects the first quarter-point rate cut to occur in September. The Fed is expected to cut again by the same amount at the FOMC's October and December meetings. In 2026, it predicts an additional two rate cuts, which would leave the Fed Funds Rate at 3% to 3.25%. Related: Fannie Mae Chair Pulte drops grim message to Fed Chair Powell The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
20 hours ago
- Yahoo
Limited Bounce for the Dollar After a Stronger NFP
The dollar made gains in most of its pairs on 3 July while gold retreated somewhat after the American job report beat expectations in both major parts although average earnings grew less quickly. Follow up has been limited so far with the USA on holiday on Friday 4 July. This article summarises the latest NFP and its context then looks briefly at the charts of XAUUSD and EURUSD. Total nonfarm for May came in at 147,000 on 3 July, significantly above the consensus of around 110,000 and in line with the average over the last 12 months of about 146,000: Earlier this year, it had seemed that the job market in the USA might start to slow down amid DOGE's cuts of federal funding and government jobs and later escalating trade wars. However, the rate of unemployment has now remained stable between 4% and 4.2% for more than a year and it seems that any possible downturn probably won't be clearly visible immediately. The figure for total nonfarm has beaten the consensus at least slightly for many consecutive months and for most of 2025 so far the previous month's figure has been revised upward. A generally stronger job market than had been expected around the end of last year means that there's less pressure on the Fed to cut rates and that the overall economy is likely to be more resilient. The next major regular data from the USA will be inflation on 15 July. For now, there's no significant intrigue around the Fed's next meeting on 30 July: there's a probability of around 95% that the Fed will hold again then at the current 4.25-4.5% according to CME FedWatch. Gold bounced quite strongly on 30 June from around $3,250 the week before that as traders monitored the debate around the American tax and spending bill and its likely effects on the deficit. However, 3 July's stronger than expected NFP seems to have capped gains for the time being. Further implementations of tariffs has continued to be chaotic. While there's no definitive evidence yet that the main uptrend has ended, it certainly seems to have paused for now and been replaced by a short to medium-term sideways trend. 15 May brought a lower low intraday but $3,250 seems to be established as a fairly strong support since then, tested unsuccessfully twice at the end of May and June. Resistance is less clear: $3,450 seems to be a likely area of reaction but this is approximate. ATR has declined fairly consistently since peaks in April and May but might now be bottoming out while volume is also relatively low now compared to the average early last quarter. The value area between the 20 and 50 SMAs is the main technical reference for now; whether the short-term direction is up or down seems to depend mainly on news, especially American politics. Euro-dollar's uptrend which has lasted fairly consistently since the start of 2025 continued in June with the price reaching a fresh four-year high above $1.18 on 1 July. Less confidence in the USA as the government continues to flip-flop and contradict on tariffs has driven capital out of the dollar. Monetary policy in the eurozone might stabilise with majority expectations pointing to only one more cut by the ECB this year while CME FedWatch suggests an 80% probability of at least two cuts by the Fed before the end of 2025. Low volume and clear overbought conditions might point to a pause in the uptrend soon, but selling demand also seems to be limited as seen from the relatively long tails of recent candlesticks. The 23.6% monthly Fibonacci retracement is slightly above the top of this chart around $1.1885. The 38.2% Fibo around $1.166 is a possible area of support. This article was originally posted on FX Empire Earnings and Inflows Push Heico Shares Up 34% Big Money Lifts Disney 1,427% Since First Outlier Buy Identify Superstar Stocks Like DoorDash Before the Crowd Spot Outliers Like Hyperscaler Microsoft Early Spot Outliers Like AI Star Broadcom Before They Pop Meta Shares: What's Next After Record Performance? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
21 hours ago
- Yahoo
The Fed forecast that everyone's watching: Chart of the Week
We're fully back to the macro play-by-play. Of the Fed's anticipated moves, that is. And on Thursday, a surprisingly robust June jobs report dramatically lowered the likelihood of a rate cut this month. Reflected in the chart that everyone's watching, the central bank is on a path to hold steady, reaffirming the view that the economy is in strong enough shape for policymakers to wait for more clarity on tariffs or for further signs of trouble. Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy A sudden reversal after Wednesday's data from ADP that showed weakness in private payrolls, the employment report appeared to end increasing speculation that the Fed would step in at the end of the month to protect a deteriorating labor market. "While there were some elements of softness beneath the better-than-expected headlines, the June employment report was strong enough to allow the Federal Reserve to keep policy on hold as it monitors the impact of tariffs on inflation," said Nancy Vanden Houten, lead US economist at Oxford Economics. As our Chart of the Week shows, markets are now pricing in just a 5% chance the central bank lowers rates at its July meeting, down from a 24% chance seen a day prior, according to the CME FedWatch Tool. The promising jobs data even shifted expectations further down the calendar. Traders grew more skeptical of a September cut from the Fed, with markets now pricing in a 68% chance the Fed reduces rates then, down from a 94% chance observed a week ago. Jeffrey Roach, chief economist at LPL Financial, said the Fed can comfortably sit in 'wait and see' mode with payrolls like these, but noted that "the administration is still actively negotiating details with several major trading partners and the eventual business impacts are unknown." In other words, a lot can still happen. The chart as a stand-in for a preview of Fed policy carries political implications. Just a day before the jobs numbers came out, President Trump unleashed his harshest criticism of Fed Chair Jerome Powell. In a Truth Social post Wednesday night, the president said Powell "should resign immediately," amplifying what has been an intensifying White House pressure campaign against the central bank leader. And on Thursday, Treasury Secretary Scott Bessent questioned the Federal Reserve's judgment on interest rates, suggesting their benchmark rate is too high. While the forecast chart itself isn't a Fed product, it's a reliable indicator of the direction of Fed policy, at least in the moment. As a gauge that's closely monitored by Wall Street and the financial press, it both reflects the market's thinking and has the ability to influence it. That's all to say that the sizable shift toward no cutting in July will likely add to the administration's displeasure with Powell — and play-by-play is sure to continue on July 15 when we get a fresh reading from the other side of the mandate with the Consumer Price Index's inflation numbers. But as far as the market's concerned, it's... not. The good news of a healthier-than-expected labor market pushed the S&P 500 and Nasdaq to new all-time highs. Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
