The Fed’s Front And Center

On this morning’s Trey Ware Show, Karl discussed why this week is so important.  While the Fed isn’t expected to lower rates this week, their tone and the rest of the year will be very important.

Transcription:

Trey Ware:                         Let’s talk about our Monday morning conversation concerning the stock market and your money. Where are we now and what do you look for this week, Karl?

Karl Eggerss:                      One clarification. It’s CovenantMFO.com.

Trey Ware:                         Okay, sounds good. All right. So our money for this week, what do you think?

Karl Eggerss:                      Yeah, for this week, it’s all about the Federal Reserve. Wednesday, they’re going to make the rate decision, and remember they were hiking interest rates all last year. President Trump was saying quit doing that. You need to cut them. The economy was doing okay so everybody said, “Why’s he saying that? Interest rates probably should be going up.” Ten we started to see some signs that the economy started slowing a bit, just decelerating. The Fed changed their tune, they said, “We’re not raising rates any more.” And the market shot back up after Christmas Eve. All January, February, March.

Karl Eggerss:                      Now here we are, and we’re seeing now there’s a 90% chance that they’re going to raise interest rates next month. Now this month, they’re going to meet this week, Tuesday, finish up on Wednesday. They’re probably not going to lower interest rates, but next month there’s a 90% chance that they will actually cut interest rates, and the market’s priced now, they’re going to cut interest rates three times. Now if you’re listening going, “What does that mean for me?” it means your money market and CDs would pay less. It means you would borrow probably for cheaper whether it’s cars, potentially homes, things of that nature. And it’s all in an effort to make sure the economy doesn’t go into recession. Again, we don’t see a recession coming, but we are seeing an economic slow down a little bit. So the Fed’s saying, “You know what? We’re going to try to make sure this doesn’t get out of hand, so we’re going to cut interest rates.

Trey Ware:                         Right.

Karl Eggerss:                      So be watching. Wednesday’s the big day of the week, and the markets will react to that, because I believe investors have boxed the Fed into a corner now whether if they don’t cut interest rates, the market could sell off, because it’s expected now.

Trey Ware:                         Where are those rates right now?

Karl Eggerss:                      It’s one of the most dramatic changes we’ve seen from the Federal Reserve in terms of the shortness of time. They were hell bent on hiking rates and then here we are just a few months later…

Trey Ware:                         Where are the rates right now, Karl? How much room do they have to cut right now?

Karl Eggerss:                      Well, they’re in the 2 1/2 range, and remember we’re talking about short term interest rates. We’re not talking about the 30-year rates or 10-year rates, we’re talking about very short term interest rates. That’s what they control. Now, it does influence obviously every other interest rate, but we’re talking about probably cutting a 1/4 of a percent three times, so they could take it from 2 1/2% or so, all the way down a 1/4% at a time, and kind of walk down the ladder. But remember we’re not at very high rates at all still. I mean after all these years, they raised them a lot as far as how many times they did it, it just wasn’t a big amount.

Trey Ware:                         Any chance that the quantitative easing coming back? Can you talk about that and doing more of that?

Karl Eggerss:                      There’s not any talk of that right now, but that’s a really good point because that’s kind of the next thing. If they start cutting rates and it doesn’t seem to be “working,” then that will be the next thing. “Well, what else will the Fed do? What else will they do to try to help this out.” Again, we mentioned last week that they can only do so much. These are economic cycles, but they’re trying to be the puppeteer here and really control and I don’t want to say manipulate, but basically manipulate the economy. And they believe that they have the power to do so. They can only do so much, so the bottom line is we’ve got a good retail sales report on Friday. It was weaker than expected, but when you looked at last month’s, they revised it up quite a bit. Because of that, when you take the two months into consideration, it was a good retail sales report. Again, the Fed cutting rates maybe a little premature, but there’s a good chance that they’re going to do it next month, not this month.

Trey Ware:                         All right. Karl Eggerss. Thank you, Karl. We’ll talk again next Monday at this time at the New Time here on KTSA.

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