An even greener green light is needed

By dr. Volker Schmidt, Portfolio Manager at Ethenea

We do not expect a rate cut at the next Fed meeting on July 31. Until recently, almost all Fed members have been very cautious when talking about easing monetary policy. We therefore believe that the Fed will want to see a series of supportive inflation and labour market data before it starts cutting rates. A greener green light is needed. Nevertheless, a reduction in the base rate will not surprise us anymore, and for good reason: The Fed's two mandates.

Reason number one - and, until recently, the primary mandate of the Federal Reserve - is US inflation, which is on a clear downward trend. The latest CPI figure came as a surprise: Prices rose less than market participants had expected. Even Fed Chairman J. Powell recently admitted in an interview that the Fed has gained "more confidence" in the downward trend of inflation. Inflation data for the past three months has improved and is approaching the "good data" the Fed is looking for. Based on this inflation data, Powell stated that the Fed is getting closer to a first interest rate cut.

Reason number two - the Fed's second mandate - is the US labour market. At present, it appears to be delivering a controlled slowdown in line with the Fed's objectives. As mandated, the unemployment rate is rising very slowly and now stands at 4.1%, down from a low of 3.4% just under a year ago. Other less-considered data, such as wage growth and the number of job openings and new hires, also point to a gradual slowdown. Overall, both of the Fed's mandates already speak for an easing of monetary policy.

We therefore believe that the first rate cut will come in September at the latest. We also follow the market consensus and expect up to three rate cuts by the end of the year. The Fed is in pole position and is waiting for an even greener green light to cut.

Volker Schmidt
Volker Schmidt

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Anna Lauwaerts

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About Ethenea

ETHENEA offers a wide range of attractive investment opportunities for different investor profiles: risk-minimised, balanced and equity-focused.

Capital preservation and the achievement of stable long-term returns are key components of the investment philosophy of the Ethna Funds. The fund management consistently realises this objective through active management and flexible asset allocation across various sectors and asset classes.

ETHENEA wants to make a contribution and offer responsible and sustainable investment solutions. Therefore, ESG criteria are an important part of the investment processes of all Ethna Funds (Article 8 SFDR).

Further information and legal information can be found at ethenea.com.

 

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