The current “higher for longer” rate mentality would have likely been a big headwind for stocks 12 months ago. However, the bank notes that market participants continue to hang their hats on the themes of declining inflation over time and a Fed that wants to cut interest rates but likely won’t have much of a chance to do so, at least over the balance of this year.
“It hasn’t hurt equity markets that the economy and earnings continue to grow at a modest pace,” writes Wells Fargo. “A glance at the fed funds futures contracts shows the market is now pricing in just one to two cuts this year, a far cry from the six to seven cuts as we entered 2024.”
For now, Wells Fargo believes the hoped-for rate cuts will likely be slow to come to fruition.
“That isn’t to say rate cuts are not coming at all, but it seems unlikely the Fed will move aggressively as the Federal Open Market Committee meets to determine policy in coming quarters,” they add.
“The pace of disinflation has stalled for now, but we do see Consumer Price Index inflation edging lower as we move through late summer and into the fall, allowing for two cuts this year.”
In 2025, the bank has adjusted down its projected number of rate cuts to just one, which would bring the fed funds target rate into the 4.5% to 4.75% range by the end of next year.
Source: Economy - investing.com
