Bank of America analysts are cautioning stock investors about betting the Federal Reserve will deliver interest rate cuts as inflation falls without a recession occurring in the wake of the central bank’s aggressive monetary tightening of the past year.
The Fed could cut interest rates if a recession was to occur to help stimulate the economy. Market expectations for rates cuts “in advance” and “high equity valuations suggest an unusual lack of concern about the need to ease policy, setting a high bar for equities to keep rallying,” according to the note.
“As economists and markets reduce expectations of further Fed hikes, investor focus is shifting to the timing and drivers of potential cuts,” the BofA analysts said. The 100 basis points of cuts expected by December 2024 are “half of what they were in May and would make for the slowest cutting cycle ever.”Goldman Sachs Group forecast, in an Aug.
Federal Reserve Bank of Minneapolis President Neel Kashkari on Tuesday questioned whether the central bank has done enough to bring inflation down after the progress it has made so far on that front through rate hikes. “The question on my mind is, have we done enough to actually get inflation all the way back down to our 2% target. Or do we have to do more,” Kashkari said during a discussion at the APi Group’s Global Controllers Conference.