Wall Street Bulls: The Federal Reserve is behind the curve, more aggressive rate cuts are justified
Renowned Wall Street optimist forecaster Tom Lee said that the Federal Reserve may be lagging behind the economic situation and needs to be more aggressive in cutting interest rates. Based on federal funds futures, it is expected that the September meeting will cut interest rates by 25 basis points, possibly to the range of 5%-5.25%. Lee mentioned that the lower-than-expected employment report indicates the disappearance of many job positions, providing a basis for the Fed to start an interest rate cut cycle, which will help the economy and the market. Despite increased stock market volatility, Lee believes that the United States may not necessarily enter a recession and that the market is showing resilience
According to the financial news app Smart Finance, Tom Lee, a well-known optimistic forecaster on Wall Street and Managing Partner and Head of Research at Fundstrat Global Advisors, said in an interview that the Federal Reserve's reliance on economic data to make interest rate decisions may ultimately harm the U.S. economy.
Lee said, "The federal funds futures market shows that there may be more than two rate cuts this year, so I think the Fed may be a bit behind the curve. We know that housing, durable goods, and auto sales are in decline, so there are many pain points in the market. More aggressive rate cuts are actually reasonable, at least from a market perspective."
According to CME's FedWatch tool, federal funds futures indicate that traders mostly expect a 25 basis point rate cut at the upcoming September Federal Open Market Committee meeting, which would bring the Fed's policy rate to a range of 5%-5.25%. However, lower-than-expected July employment reports and the possibility of a larger 50 basis point rate cut next month due to annual wage revisions leave room for speculation.
Lee said, "The employment report released earlier this month and the just-released revised data indicate that many jobs have disappeared... I believe this provides more basis for the Fed to start a rate cut cycle, which will inject more vitality into the economy and the market, especially for cyclical stocks and small-cap stocks."
The Federal Reserve has long emphasized that its monetary policy decisions are data-dependent, meaning that decisions should be based not only on the dynamics of current economic data but also on long-term trends and expectations for future data.
Known for his optimistic outlook, Wall Street strategist Lee gained fame for accurately predicting last year's stock market rebound. He stated that the recent surge in stock market volatility earlier this month was worrisome, but his team still sees it as a "growth scare" because "we do not believe the U.S. is entering a recession."
Lee said, "People thought that the depreciation of the yen brought systemic risks, but since then the market has shown strong resilience. We rebounded so quickly, indicating that this market is very robust."
The widely watched "fear index" Cboe Volatility Index has fallen by over 75% since August 5th, remaining well below its long-term average level of around 20 on Thursday morning.
Regarding the 2024 presidential election and its impact on the financial markets, Lee stated that the market "believes" in a higher probability of Trump winning than indicated by polls.
According to RealClearPolitics data, as of Thursday morning, Trump's probability of winning the November election was 50.3%. This is an increase from 47% before the Democratic National Convention.
He said, "When the market believes more in this (Trump winning), you will see better performance in cyclical stocks, small-cap stocks, and Bitcoin, as these truly reflect clear policy differences. But I think in the past few days, the market seems to be betting on Trump's chances higher than what the polls show."
According to FactSet data, U.S. stocks fell on Thursday as investors awaited Federal Reserve Chairman Powell's speech at the Kansas City Fed's annual symposium in Jackson Hole on Friday morning. The Dow fell by 0.43%, the Nasdaq fell by 1.67%, and the S&P 500 index fell by 0.89%