1. The Fed is expected to delay rate cuts longer than anticipated, according to John Hancock strategist Emily Roland.
2. Consumer spending remains strong and market momentum is driving the economy, despite elevated interest rates.
3. Riskier areas like crypto-related stocks and AI companies are gaining momentum in the market, with no significant cracks appearing despite high rates.
A John Hancock strategist believes that the Federal Reserve will delay rate cuts longer than anticipated due to strong consumer spending and market momentum. Despite elevated interest rates, the economy has not shown any significant weaknesses, with risky assets like crypto-related stocks and AI darlings gaining momentum. Momentum seems to be outweighing the impact of high rates, indicating that rates will likely remain steady for the time being.
The US economy is currently experiencing a tug-of-war between elevated interest rates and strong market momentum. While borrowing money has become more expensive, consumer spending and market hype continue to drive growth. The Federal Reserve is expected to keep rates on hold for longer than previously expected, as the economy is holding up well despite tightening monetary policy.
Consumer spending continues to rise, with Americans splurging an additional $133.9 billion at the end of last year. This spending, driven by “YOLO spenders,” is fueling economic growth and strengthening the US economy. Additionally, market momentum is evident across various sectors, with riskier assets like crypto-related stocks and AI companies gaining traction. Despite recent market fluctuations, assets like Bitcoin and tech stocks continue to rally, indicating confidence in the market’s resilience.
The Federal Reserve has hinted that a rate cut in March is unlikely, and the possibility of the Fed maintaining its pause in May is increasing. The CME FedWatch Tool shows that the odds of the Fed maintaining their pause in May have risen from 40% to 59%, reflecting the current trend of stable interest rates in response to strong consumer spending and market momentum.