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There is no guarantee that the Federal Reserve will reduce interest rates this month, although the CME Group's FedWatch tool shows that traders have 100% probable prices, warned veteran hedge funds , Mark Yusko.
US stocks fell last week after a stronger-than-expected jobs report raised fears among investors that the Fed could delay interest rate cuts. The markets' defeat continued on Monday as the Dow Jones ended the day at over 100 points less.
The Fed was split on the forecast of a rate cut this year at its last meeting, but the market is still expecting a cut this month, according to the FedWatch CME tool. However, Yusko, who has bearish outlook for the year, expects that a holdback be a more likely outcome at the July 31 central bank meeting.
The "politicization" of a rate-cutting decision has changed a lot in the last six months, said Yusko, CEO of Morgan Creek Capital. Fed President Jerome Powell seems to be listening to political pressure, especially from President Donald Trump, he added. There is a conflict, however, as rates tend to fall when there are signs of economic turmoil.
"The only thing that people really make a mistake on is that they say that a reduction in interest rates is a good thing because they could use a rate of interest." 39, discount lower, "Yusko told CNBC's" Fast Money "issue. That would be because "incomes and growth will be catastrophic," he said.
Yusko is not the only expert to say that investors' expectations of rate reduction are too high. Economist Mohamed El-Erian, widely followed, said last week that the market may be expecting too much cuts from the Fed this year. He was still planning a cup this month but maybe nothing after.
"As the base of the market, we let ourselves be carried away, we were convinced that it would be 50 basis points in July and three cuts by the end of the year," El – Erian told Reuters. CNBC's "The Exchange" show on Friday.
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