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Yahoo
an hour ago
- Yahoo
'That's the million-dollar question': Wall Street divided on Fed rate cuts as tariff uncertainty lingers
After a week marked by trade flare-ups, record-breaking stock market highs, and trillion-dollar valuation milestones for AI darling Nvidia (NVDA), Wall Street remains locked in a heated debate over the Federal Reserve's next move. While some firms like Goldman Sachs have pulled forward their expectations for a September rate cut, others have warned that tariffs and lingering inflation risks may force the Fed to hold off until later this year or possibly next. "This is the million-dollar question," Neel Mukherjee, chief investment officer at TIAA Wealth Management, told Yahoo Finance when asked about the Fed's rate-cutting path. "Inflation still hasn't been impacted by these tariffs, which has surprised a lot of people ... but the Fed is focused on inflation because they're worried about goods inflation. And that will accelerate." Economists have echoed concerns that the risk of higher prices still lingers, a view shared by many on Wall Street. Investors will get their next major test early this week when the latest Consumer Price Index (CPI) is released. While CPI has been trending lower on a monthly basis since Trump's initial tariff announcements in April, uncertainty around the inflation outlook remains. Meanwhile, ongoing political pressure is adding fuel to the fire. Last week, President Trump continued his public campaign for lower rates, calling Federal Reserve Chair Jerome Powell "Too Late Powell" and demanding deep rate cuts to ease the burden on consumers. "Our Fed Rate is AT LEAST 3 Points too high," Trump said in a Truth Social post on Wednesday. "LOWER THE RATE!!!" Read more: How much control does the president have over the Fed and interest rates? Michael Kantrowitz, chief investment strategist at Piper Sandler, argued that while Trump's call for deep rate cuts may be extreme, the broader message — that policy remains too restrictive for many Americans — holds weight. "Just because the overall economy and market, which is increasingly a reflection of the largest businesses and wealthiest consumers, appears to be chugging along doesn't mean that lower rates aren't warranted," Kantrowitz said in a note to clients on Wednesday. He added that scars from the 2022 inflation shock have left policymakers overly cautious. "This is recency bias at its best," he said. "We are not in the COVID backdrop any longer and tariffs as an inflation risk akin to the 2022 experience is exaggerated. Tariffs are a narrow tax, likely to lead to demand destruction, substitution and pockets of price hikes rather than broad-based inflation." Kantrowitz pointed to the weakening housing market as a key reason the Fed should act: "Historically speaking, every single broad-based improvement in the US economy began with an improvement in housing, and for that to occur we'll need to see lower rates." That message appears to be resonating in some corners of Wall Street. Goldman Sachs recently pulled forward its forecast for the next rate cut to September, up from its previous December projection. The firm now expects three 25-basis-point cuts in September, October, and December. The bank cited weaker-than-expected tariff impacts and a softening labor market as key drivers behind the shift. But not everyone is convinced a September cut is a done deal. Jeff Schulze, head of economic and market strategy at ClearBridge Investments, said he sees a scenario in which the Fed delays easing until later in the year. "The Fed may sit on their hands longer than what's currently being priced into the markets," he told Yahoo Finance. "And if that happens, companies that don't have as many offsets to the tariff pressures may continue to struggle in this environment." Read more: What experts say about the possibility of additional rate cuts Steve Sosnick, chief strategist at Interactive Brokers, echoed that uncertainty, arguing that the inflation picture remains too murky, especially with tariffs in flux. "We can't know [how tariffs will be baked in] because the numbers keep changing," he said. "There's too much uncertainty for the Fed to really move." Even the Fed itself appears divided. Minutes from its June policy meeting revealed a split committee, with "most" officials supporting at least one rate cut this year while "a couple" signaled they'd be open to moving as early as July. Others preferred to hold rates steady through year-end. That policy limbo is already showing up in markets, with traders pricing in a 60% chance of a September rate cut, according to the CME FedWatch tool. The odds of the Fed holding steady in July are near 100%. Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at Sign in to access your portfolio
Yahoo
2 hours ago
- Yahoo
Economy is 'weakening': Here's what investors should do
Brent Schutte, Northwestern Mutual Wealth Management Company chief investment officer, joins Morning Brief with Julie Hyman to discuss the biggest risks facing investors right now: inflation, a slowing economy, and potential earnings weakness. Watch the video above to hear Schutte's advice for investors who need to "pump the brakes." To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. So, Brent, as investors are weighing what to pay attention to, they seem to be looking past tariffs largely. So, then you've got earnings and you've got the Fed. Which should investors be more focused on right now? All of the above. I mean, I think investors are just looking past everything that's out there and judging that nothing is going to upset the apple cart, which I'm not for sure is going to occur. Look, um, we've only been with tariffs for three months, pretty much, and we don't know yet if they're going to filter through into higher inflation or a slower economy. I think there are risks on both sides of the equation, as well as risks on the earnings side, and that's why I think investors need to pump the brakes just a bit and make sure that they're following their strategic asset allocation and staying true to their financial plan. And what do you, okay, so if they, if we're paying attention to everything, which do you think is the potential biggest risk here? Look, I think the economy is showing signs of weakening. If you look at the labor market, yes, it's remained resilient, but for the past three months in the BLS labor department report, you've seen less than 50% of the industries actually hiring, which historically has been a warning sign. You've seen continuing claims tick up. On the consumer spending side, you've had 0.5% quarter-over-quarter growth in consumer spending in Q1, and the last two quarters have been negative 0.3 and positive 0.1. This is where I think you're seeing signs that the economy is slowing down. I think consumers or investors are thinking it's going to speed back up, and that's where I think there are still risks to that equation, especially as we continue to find more and more about tariffs and what direction they're heading, which I don't think we have certainty yet. And Brent, it's interesting because we've had a number of strategists come on the program recently and say they view the recent tax and spending bill as stimulative, right? They look at things like some of the tax changes for capex by companies, um, and and they seem to think that maybe that could mitigate some of the weakness here. How are you thinking about that? It certainly could. I guess the question out there is which side overwhelms which, and which isn't priced into the market, and at the S&P 500 trading at 24 and a half times trailing 12-month earnings, and 23 times forward 12-month earnings, expected to grow 7%, appears a bit optimistic to me. But the good news is there are opportunities in other places. And I was heartened as I came on the show, you were talking about some of the older school companies that I grew up with: Kellogg, Delta, things of that nature, not just tech stocks. This is where I think there are opportunities for investors to broaden their horizons and think about small cap stocks, which trade at the second lowest valuation relative to large cap stocks in the 31 years that I've done this. The other time was June of 2000. I think we're all ignoring that international stocks are up around 20% year-to-date, and I think that's going to continue into the future because I do think the administration would like to see the dollar lower, which serves as a tailwind to US dollar-based investors' investments in international areas. And so my big message to investors is to not just concentrate in those parts of the market that have done well the past few years. I do think there's a broadening that's going to occur one way or the other. And that's why I think there are opportunities in other places that just haven't worked as well recently. Brent, let me ask you about small caps specifically, right? Because people have been, or certain investors certainly have been touting small caps for a while here. They haven't worked, right? And it seems like perhaps it's at least somewhat contingent on rates coming down. Do you think that's still the case? Do you think rates need to come down in order for small caps to work? I think there are two things here. One, I mentioned June of 2000. That was before a recession, so rates did come down a little bit during that time period. That's typically what resets the cycle. It doesn't have to be that way. The initial shock of interest rates is just that, a shock. Um, we've had the same level of interest rates for the past couple of years and so now companies are adapting to that. There are also positive things in that one big, beautiful bill, such as deregulation, such as lower tax rates that will actually probably serve as some sort of a stimulus to small cap stocks. And so to me, you know, I go back to valuation. I talk about that. People don't pay attention to that today, but I think they will in the future. At least they have historically. And that's where I think anyone with a time horizon more than the next three minutes should think about owning small cap stocks for the next three to five to seven years, because I do think you're in for a cycle of different market leadership, and that is what historically has happened, and I think it will happen once again. Sign in to access your portfolio
Yahoo
2 hours ago
- Yahoo
Economy is 'weakening': Here's what investors should do
Brent Schutte, Northwestern Mutual Wealth Management Company chief investment officer, joins Morning Brief with Julie Hyman to discuss the biggest risks facing investors right now: inflation, a slowing economy, and potential earnings weakness. Watch the video above to hear Schutte's advice for investors who need to "pump the brakes." To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. 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
