Federal Reserve & Interest Rate Expectations
The Federal Reserve’s latest meeting is underway, marked by the six-weekly decision-making process of the Open Market Committee. Anticipation surrounds the outcome, although no significant changes are anticipated. Attention is focused on the language used, set to be released at 11:00 AM EDT on Wednesday.
Speculation abounds regarding Federal Reserve Chair Jay Powell’s stance, particularly regarding the possibility of a rate cut in June or a commitment to a “higher for longer” approach. The outcome of the meeting will shed light on these crucial matters. Notably, small caps, especially regional banks, are eagerly awaiting a rate cut to alleviate financial pressures.
Meanwhile, the iShares 20+ Year Treasury Bond ETF (TLT) has experienced a decline for eight consecutive days, marking its most extended downward trend in 22 years. This trend reflects market expectations of an extended period of higher interest rates, buoyed by the robust performance of the US economy.
Despite the ongoing strength of the stock market, there is growing sentiment that the Federal Reserve may need to intervene with a rate cut by summer to support small caps and regional banks. Failure to do so could precipitate another crisis in the near future.