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The Fed's frenzy with the Fed may not behave as investors expect.
That's at least what says Michael Schumacher, global head of rate strategy and general manager of Wells Fargo Securities, who said investors may be disappointed with the Fed's next move.
Many on the street expect the US central bank to cut its key rate at the next meeting of the Federal Open Market Committee in late July, in response to the weakening of economic data at the national and global levels. The CME 's FedWatch tool currently indicates that traders are pricing 100% the chances of a reduction in July.
But what the stock market is taking into account regarding the Fed's policy could be too aggressive, Schumacher told CNBC's "Futures Now" on Thursday.
"We think they'll come and make two moves, so a total of 50 basis points [worth of cuts]. Schumacher estimates that the market price varies between 65 and 70 basis points. So we think that, at least in Wells Fargo, we think the Fed is going to disappoint the market in a strange way. [cutting] as much as it already provides. "
Schumacher's remarks came as Fed Chairman Jerome Powell delivered what the strategist considered "very accommodating" comments in a two-day testimony before Congress. In this paper, Powell said that macroeconomic "cross currents", including trade tensions and worries about global growth, were weighing on US economic activity and that the central bank would act as it should " in response.
"He wants to cut," said Schumacher, adding that constructive data on US consumer prices released Thursday morning had not changed the view of the president, who had likely seen the data before his testimony.
And, if the Fed decided to make a downsizing, the 10-year US Treasury yields could also experience counterintuitive moves, said the quarterback, whose end-of-year goal for performance at 10 years is 2.30%. Friday, it rose to 2.13%.
"We think, in a perverse way, that yields are going up," he said on Thursday. "Typically, you could say," Well, hey, if the Fed is about to cut, should not you have a big bond rally? "The answer is yes, but we've already had it, there has been a tremendous gathering since November, we think it's about done."
But not everyone agreed with the idea of an imminent rate reduction.
"No one has convinced me yet that [Powell]Anthony Grisanti, founder and president of GRZ Energy, said in the same segment "Futures Now". I do not think he's going to cut rates at the end of the month. "
Grisanti, who has been trading futures for decades, said that between the ever good US economic data, the prospects of a trade deal between China and China and the pressure exerted by President Donald Trump on Powell, a reduction still seems unlikely.
"If we get a trade deal, … he will have to totally change course and then he will lose all credibility, and I also think that if he lowers the rates, he really looks like he is going to be in. be under the thumb of Trump, "said the trader said. "So, I think he's going to look at the situation very closely, there are still some data points to go out."
US Treasury yields hit a one – month high on Friday after the June consumer price index surpbaded inflation expectations.
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