There’s no guarantee the Federal Reserve will cut interest rates this month despite the CME Group’s FedWatch tool showing traders have priced in a 100% probability, hedge-fund veteran Mark Yusko warned Monday.
U.S. stocks tumbled last week after a stronger-than-expected jobs report raised concerns with investors that the Fed could hold off on cutting interest rates. The market rout continued on Monday, with the Dow ending the day more than 100 points lower.
The Fed was divided on projections for a rate cut this year at its last meeting, but the market is still expecting a cut this month, according to the CME FedWatch tool. However, Yusko, who has a bearish outlook for the year, expects a hold is a more likely outcome at the central bank’s meeting on July 31.
The “politicization” of a rate cut decision has changed a lot in last six months, said Yusko, the CEO of Morgan Creek Capital. Fed Chair Jerome Powell seems to be listening to political pressure, including from President Donald Trump, he added. There’s a conflict though, because rates tend to get slashed when there are signs of economic turmoil.
“The one thing that people are really making a mistake about is they are saying that an interest rate cut is a good thing, because they could use a lower discount rate,” Yusko said on CNBC’s “Fast Money. ” However, if rates were cut it would be because “earnings and growth are going to be disaster,” he said.
Yusko isn’t the only expert saying investor expectations for a rate cut are too high. Widely followed economist Mohamed El-Erian said last week that the market may be expecting too many cuts from the Fed this year. He still projected one cut this month but possibly nothing after that.
“We as the market base have gotten carried away — carried away thinking it will be 50 basis points in July, thinking we’re going to get three cuts by the end of the year,” El-Erian said on CNBC’s “The Exchange” on Friday.
