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Future cuts uncertain: Latest Fed meeting indicates positive direction for economy, strategist says

Quincy Krosby, chief global strategist for LPL Financial, said the market's reaction to the Federal Reserve's latest meeting seemed to be brighter than expected.

Future rate cuts were still uncertain, but market reaction seemed better than expected after Chair Jerome Powell's comments on the Fed's meeting Wednesday, a strategist said. (Scripps News)

Federal Reserve Chair Jerome Powell speaks on Wednesday

By: Scripps News Staff

Posted

U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the central bank had not made a decision on any future rate cuts, but said the option "could be on the table" by September.

Powell's public comments had a definite impact on U.S. financial markets that were seen as a sign of optimism among investors.

Quincy Krosby, chief global strategist for LPL Financial, told Scripps News the reaction in the market was swift and appeared to be for the right reasons.

"There was no worry in the market's response, which suggests that the market sees that the Fed will cut rates at its September 18 meeting. And it will do it, because inflation is coming down to a level that is commensurate with lower rates," Krosby said. "What the market doesn't want, and what I think the average American doesn't want, is for the Fed to cut rates because the economy is slowing too much and that the labor market is deteriorating."

The Fed did not change its key interest rate, keeping it at a 23-year high of 5.3%.

Krosby said the meeting by the central bank "suggested" possible future rate cuts "will be for good news."

The Federal Reserve is working to control inflation and has a target of 2%. In June, data indicated the Bureau of Labor Statistics' Consumer Price Index increased by 3% from the previous year.

Powell said in previous comments, "If we were to see inflation, for example, moving down quickly — more or less in line with expectations. Growth remains, let's say, reasonably strong and the labor market remains consistent with its current condition then — I would think that a rate cut could be on the table at the September meeting."

The question is how quickly those possible decisions would impact loan rates for the average consumer.

"The mortgage and car loan rates, you see how they've come down with economic data releases," Krosby said. "It typically moves in concert with the Fed. However, and I want to make this clear, [Powell] said September enough times to make this clear, he thinks it's going to happen."