Central Bank Impact Assessment

The Fed has taken a significant step by officially initiating its cutting cycle, which holds profound implications for the financial world. ⚠️The #FOMC has cut the FFR by 50 Basis Points to a 4.75%-5% Range. ⚠️The latest projection of the Neutral Rate, R*, came in at 2.8% versus the previous estimation of 2.9% A cutting cycle might affect other central banks' stance on monetary policy because the US Dollar could devalue considerably going into 2025, making exports from other countries like Japan more expensive. For the past two weeks, business media has made a huge story out of a 25—or 50-basis point cut, but in my opinion, today's decision on the magnitude of the cut is meaningless. Financial conditions have eased considerably since July, so it should not be a surprise that the US economy might have already started to re-accelerate. The Atlanta Fed GDPNow is flashing a Real Growth Rate of 3% for the US Economy. If that materializes, it would mean that the US #Economy is already running 1% above its potential. Why financial conditions have already started to ease? Here are some examples: ✍️Mortgage Rates decreased from 7% in July to 6.15% today ✍️The 2-Year Yield decreased from 4.75% in July to 3.63% today ✍️The 5-Year Yield decreased from 4.06% in July to 3.47% today ✍️Housing Starts have picked up momentum What market participants have priced out is a resurgence of inflation during 2025. That scenario is entirely possible if the Dollar Index drops below 100. A cheaper dollar will make commodities and import prices more expensive for the US consumer, and a reduction in real income could squeeze even more of the low to middle class into the USA. Considering the decrease in US Treasuries for the past two months, I find US Government Bonds expensive across the yield curve at these levels. I think R* is well above what the Fed estimates because of factors like de-globalization, the reshoring of strategic industries, and increased protectionism. The terminal rate post-pandemic is between 3.5% and 4%, in my opinion, and that is where I think this cutting cycle will end. If I am proven right, bond investors must reprice government bond yields higher. How do we play a potential increase in inflation in a no-landing scenario? I tilted my portfolio as I outline here below: 👉Tilt the portfolio to over-weight energy and miners. 👉Have a marginal exposure to Gold and Silver. 👉Favor TIPs over US Treasuries 👉Increase allocation to US Value Stocks and International Stocks. 👉Lock-In US Investment Grade Credit at the belly of the yield curve where we can still get 4.8% to 5% yields, especially on issues at the Single-A Rating Enjoy the ride! #Finance #InterestRates #Economy #Investing

The Federal Reserve matched our expectations and reduced its policy rate by 50 basis points to a range of 4.75 to 5.00 percent. This was the right decision and demonstrates the Fed wants to get on-sides as the balance of risks shift. Turning to the next few months, here is what I believe is important. Powell is in control of the FOMC. He mentioned the core PCE nowcast during the blackout was a factor behind yesterday’s move and likely dragged a few of his colleagues (Barkin) across the 50bp finish line. The outcome of this meeting tells me that Powell’s threshold to do more is probably somewhat lower than his colleagues. This is one reason I am inclined to not put too much stock in what the dots show. Unemployment up to 4.4% likely implies some weak jobs and activity data between now and year-end. Powell won’t have it. The next fight will be picking up the pace to neutral. Another 50bp rate cut is a call option on the data deteriorating. A weak(ish) employment report, we get two between now and the next meeting, likely cements another 50bp rate cut. So, my baseline through year-end is another 75bps of cuts. Additionally, if inflation continues to run below two percent, which is a notable possibility over the remainder of year, I think it warrants a more rapid pacing of easing, irrespective of whether the activity data are slowing. All in all, I thought it was the right decision for the economy and my general sense is that if Powell does the right thing once, he is willing to do the right thing again. That’s good for markets and the economy. 

Fed Chairman Jerome Powell indicated that the Federal Reserve is preparing for interest rate cuts, emphasizing that the time has come for policy to adjust as inflation has significantly declined and the labor market is no longer overheated. In his speech at the Fed's annual retreat in Jackson Hole, Wyoming, Powell noted that while inflation is still above the Fed’s 2% target, the progress made allows the central bank to focus equally on maintaining full employment. He acknowledged the need to adapt policy based on incoming data and evolving risks, without specifying the timing or extent of the rate cuts. On Friday, he said, “The time has come for policy to adjust,” and added, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” With the Federal Reserve signaling potential interest rate cuts, investors should consider adjusting their financial planning and portfolios to align with the changing economic environment. Here are some steps to consider: 1. Review Fixed-Income Investments: Interest rate cuts typically lead to lower yields on bonds, money markets, and CDs. However, existing bonds may increase in value as their higher rates become more attractive compared to new issues. If you prefer or need fixed income, now is the time to review your positions and consult with an experienced Sun Group Wealth Partners advisor. 2. Reevaluate Equities: Lower interest rates can boost equities, particularly growth stocks, as borrowing costs decrease and economic conditions potentially improve. However, it’s important to assess sector exposure, as some industries, like utilities may perform better in a lower-rate environment. This could be favorable for those who have been waiting for mortgage rates to come down. 3. Consider Dividend Stocks: With rates potentially decreasing, the appeal of dividend-paying stocks or notes might increase, especially those with strong fundamentals. These can provide a steady income stream as bond yields decline. 4. Stay Diversified: Maintain a well-diversified portfolio that can withstand various market conditions. Diversification across asset classes, sectors, and geographies can help manage risk during periods of economic adjustment. 5. Prioritize Financial Planning: Keep your budget in line, focus on needs vs. wants, and set up auto-savings/auto-investing for your important long-term goals such as retirement or education planning for your family. This is also a good year to explore your estate-planning needs. Sun Group Wealth Partners has significant resources to assist with your future planning. 6. Stay Informed: Continue to follow our weekly newsletter and watch our videos. Together, we can monitor the Federal Reserve’s communications and economic indicators. The timing and pace of rate cuts will depend on evolving data. Thank you, and please reach out if you have any questions.

One of the reasons the Fed has started and continues to cut rates is the fear of a weak labor market. One of the reasons for this fear is the decline in quits and hiring rates from JOLTS. Both have dropped significantly in recent years and are currently very weak. I’ve written about this topic in recent months, and also in Labor Matters this week. I believe the new chart below is instructive. The chart compares implied labor market tightness using quits and hiring rates alongside the unemployment rate, by inverting the unemployment rate and indexing all three indicators to January 2016 = 100. Both measures suggest a significantly looser labor market than the unemployment rate indicates. While it’s possible the unemployment rate understates labor market weakness, no other labor market indicators are as weak as the quits and hiring rates. We don't entirely understand what drives these indicators. Is it growth in employment opportunities? Is it the fear of future layoffs? Is it something related to labor market churn but not to labor market tightness? We just had a pandemic followed by the tightest labor market in recorded history. This is not a normal time, and it is possible that these indicators are not giving us a normal signal. I don’t think these indicators should carry too much weight in decisions about interest rates. #labormarkets #Economy #recruitment #retention #federalreserve #interestrates

A coaching client just asked me, "𝗧𝗵𝗲 𝗙𝗲𝗱 𝗷𝘂𝘀𝘁 𝗰𝘂𝘁 𝗿𝗮𝘁𝗲𝘀 𝘁𝗼 𝟬.𝟱%. 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗲𝗮𝗻 𝗳𝗼𝗿 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿?" 𝘐𝘵 𝘸𝘢𝘴 𝘢 𝘸𝘢𝘬𝘦-𝘶𝘱 𝘤𝘢𝘭𝘭. I realized that many professionals were unsure how economic policies affect their job prospects. 𝗧𝗵𝗲𝘆 𝘄𝗲𝗿𝗲 𝗺𝗶𝘀𝘀𝗶𝗻𝗴 𝗼𝘂𝘁 𝗼𝗻 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀 𝘀𝗶𝗺𝗽𝗹𝘆 𝗯𝗲𝗰𝗮𝘂𝘀𝗲 𝘁𝗵𝗲𝘆 𝗱𝗶𝗱𝗻'𝘁 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗶𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻𝘀 𝗼𝗳 𝘁𝗵𝗲𝘀𝗲 𝗰𝗵𝗮𝗻𝗴𝗲𝘀. I didn't want this to happen to anyone else. So, as a career strategist and former private wealth manager, I dove deep into understanding how interest rate cuts affect the job market and leveraged my insider knowledge of industry trends. I discovered that this rate cut could have significant impacts. Job creation, wage growth, sector shifts – they all matter. I decided to share these insights with you.Here's what you need to know about how the Fed's 0.5% rate cut could affect your career: - Potential increase in job opportunities - Possible upward pressure on wages - Preservation of recent labor market gains - Varying effects across different sectors - Improved conditions for career transitions 𝗕𝘆 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝘁𝗵𝗲𝘀𝗲 𝗶𝗺𝗽𝗮𝗰𝘁𝘀, 𝘆𝗼𝘂'𝗹𝗹 𝗯𝗲 𝗯𝗲𝘁𝘁𝗲𝗿 𝗽𝗼𝘀𝗶𝘁𝗶𝗼𝗻𝗲𝗱 𝘁𝗼 𝗺𝗮𝗸𝗲 𝗶𝗻𝗳𝗼𝗿𝗺𝗲𝗱 𝗰𝗮𝗿𝗲𝗲𝗿 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀. 𝗕𝗲𝗰𝗮𝘂𝘀𝗲 𝗲𝘃𝗲𝗿𝘆𝗼𝗻𝗲 𝗱𝗲𝘀𝗲𝗿𝘃𝗲𝘀 𝘁𝗼 𝗯𝗲 𝗽𝗿𝗲𝗽𝗮𝗿𝗲𝗱. And everyone deserves a chance to thrive in changing economic conditions. Remember, economic shifts create both challenges and opportunities. With the right knowledge, you can navigate these changes successfully. 𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐲𝐨𝐮𝐫 𝐭𝐡𝐨𝐮𝐠𝐡𝐭𝐬 𝐨𝐧 𝐭𝐡𝐢𝐬 𝐫𝐚𝐭𝐞 𝐜𝐮𝐭? How do you think it will affect your industry or career plans? #FederalReserve hashtag#JobMarket #EconomicPolicy #CareerDevelopment #ProfessionalGrowth

The Federal Reserve’s half-point cut in the Federal Funds Rates signals both the end of its fight against high inflation and a renewed focus on supporting the labor market. Chair Powell’s speech in Jackson Hole last month previewed this shift toward protecting the labor market, and those words are now turning into action. Powell and other policymakers openly acknowledged the risks to the labor market are growing, with 12 participants indicating unemployment risks were increasing, up from only 4 in June. The median projection for the unemployment rate for the end of this year and 2025 increased to 4.4%, from 4% and 4.2% earlier this year, signaling the Fed expects the labor market to soften further. With inflation trending toward 2 percent, a smooth landing can happen if actual data comes in as projected. But whether or not the pilot lands the plane skillfully depends on whether the pullback in interest rates is large enough and quick enough. The descent is going well so far, but the plane is not yet on the ground.

Major central banks made significant monetary policy decisions in December 2024, with the Federal Reserve's communication triggering substantial market volatility. The Fed reduced its projected 2025 rate cuts from four to two, while the European Central Bank initiated a 25-basis-point cut despite sticky inflation. The Bank of Japan faces unique challenges in normalizing its ultra-loose monetary policy while managing high government debt and weak consumption growth. Looking ahead to 2025, each central bank faces distinct challenges: the BOJ must balance policy normalization against fragile recovery, the ECB navigates divergent regional growth patterns, and the Fed considers economic risks under an incoming Trump presidency. Despite these challenges, The EIU forecasts that global GDP will see growth accelerate from 2.5% in 2024 to 2.7% in 2025, with inflation moving toward central bank targets. However, both currency and capital markets may experience volatility as economies continue normalizing post-pandemic and adapting to U.S. policy changes

The latest snapshot of new unemployment claims tells us that, broadly speaking, surging layoffs aren’t being seen. The Labor Department says initial claims declined by 12k to 219k, the lowest since May. This update coincides with the survey week for the forthcoming September monthly employment report, which could help generate a better payrolls (or hiring) number. The economy has added an average of 116k jobs a month over the past 3 months, with 142k added in August, but with downward revisions subtracting nearly 90k jobs for June and July. Reading the tea leaves, it appears that the Federal Reserve believes an added measure of monetary policy insurance was to support the job market. Officials don't want to see further softening of the job market and lower rates are the tool they have to support that. At his news conference, Chairman Jerome Powell noted the recent unemployment rate of 4.2% is consistent with the long-run view of "full employment". Still, that rate has risen from a decades-low level of 3.4% in April 2023. In his opening statement, he said, "If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond. Policy is well-positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate." That mandate seeks both maximum employment (a healthy job market) and stable prices (associated with an annual inflation rate of 2%). Of course, for any individual and household, job loss (associated with a loss of income) is devastating. It is our job to monitor broad trends. Continuing claims, or the total number of persons receiving assistance through regular state programs, also declined. They dropped 14k to 1,829,000. Still, they’ve remained above 1.8 million for 15 straight weeks. With interest rates still restrictive, it is possible, if not likely, that unemployment rises further. This is why we monitor unemployment applications to get a sense of whether the tide is turning. Our recent survey of workers from Bankrate found nearly half planned to look for a new job over the coming year. At issue is whether employment conditions will help them to be successful in that pursuit. https://lnkd.in/eW_tGfRh

What’s up with Fed Rate Cuts? All eyes on jobless claims The Federal Reserve recently left interest rates unchanged, signaling potential rate cuts as early as September. With rates currently at a two-decade high of 5.25% to 5.5%, the Fed's cautious approach focuses on taming inflation and observing the weakening labor market. 📉 Market Expectations - Inflation: The Fed's preferred price gauge is now within half a percentage point of its 2% target. - Unemployment: The rate has risen for three consecutive months to 4.1%, and new jobless claims hit a near-year high of 249,000 last week - Global Trends: Both the Bank of England and the Bank of Canada recently cut their key rates 📊 Consequences for the Economy - Stock Market Reaction: Historically, rate cuts have boosted stock prices, but if unemployment spikes, the stock market could fall, pricing in a higher probability of recessions. - Consumer Spending: Lower interest rates could increase consumer spending, driving economic growth. However, higher unemployment would be a drag on consumer spending. Lower long-term rates: Rates on longer-dated securities such as the 10-year treasury are lower than a few days ago, matching expectations for lower rates ahead. 💡 Actionable Insights for Investors 1) Review Your Finances: Consider refinancing debt at lower rates, using variable rates for borrowing and fixed rates for lending if possible.   2) Review Your Portfolio: Consider increasing exposure to sectors that benefit from lower interest rates. 3) Diversify: Maintain a diversified portfolio to manage risks associated with market volatility. 4) Stay Informed: Keep an eye on economic indicators like jobless claims, inflation rates, and Fed announcements to make timely adjustments. In summary, while the Fed's potential rate cuts indicate a shifting economic landscape, staying informed and strategically positioning your investments can help you navigate these changes successfully. What are you doing to position accordingly? #Investing #Economy #Fed 

The Federal Reserve’s July 2025 decision to hold interest rates at 4.25%–4.5% might seem like a pause in monetary action. But beneath the surface, the decision reflects a delicate balance of political pressure, inflationary risks from new tariffs, and a labor market that’s showing signs of moderation without tipping into recession. For CFOs, treasurers, and corporate strategists, this “pause” is far from passive. It shapes how companies approach liquidity planning, debt management, and capital allocation for the rest of the year. In this edition, We explore how the Fed’s stance could influence corporate cash flows, and what scenarios financial leaders should be preparing for in the coming months. #CashFlow #Fed #InterestRates #Tariffs #CorporateFinance