July 2024 – 3 in 3 Market Update
This month, Jason discusses federal reserve mandates, rate cut expectations and rate cut beneficiaries.
FEDERAL RESERVE MANDATES
The Federal Reserve’s mandate for monetary policy is commonly known as the dual mandate. This dual mandate consists of two primary objectives: promoting maximum employment and maintaining stable prices. The Fed’s target for inflation is typically around 2%. The unemployment rate is considered to be at its maximum sustainable level when it falls between 4% and 5%. The primary tool that the Fed uses to achieve these mandates is through controlling interest rates.
RATE CUT EXPECTATIONS
The consumer price index dropped by 0.1% in June, contrary to economists’ forecasts of a 0.1% rise. Many institutions have adjusted their expectations, now anticipating an interest rate cut in September following the unexpected drop in inflation in June. As of July 19, 2024, the CME FedWatch Tool indicates a 98.1% probability of a rate cut at the Federal Reserve’s September meeting.
RATE CUT BENEFICIARIES
Lower rates can benefit many sectors and investments, including growth stocks, small and mid-cap stocks, and real estate. For growth stocks, lower rates can increase the value of future earnings and reduce borrowing costs, which can cause these stocks to increase in value. Small and mid-cap stocks also tend to benefit from lower rates, as smaller companies generally have higher levels of debt than larger ones and can be more susceptible to economic stress. In the real estate sector, real estate investment trusts (REITs) and other real estate investments can benefit from falling rates.
