- Charles Schwab’s CIO said the Fed would only cut rates if a recession was feared.
- Friday’s jobs report will help markets determine the health of the US economy.
- Liz Ann Sonders told CNBC that strong jobs data will allow the Fed to “continue on a positive path.”
According to one of Charles Schwab’s top strategists, the Fed will only start cutting rates if it’s worried about a weakening US economy, and the natural fall in inflation won’t be enough to pivot it.
Brokerage chief investment officer Liz Ann Saunders said the market needs to start looking at economic data beyond the monthly consumer price index report.
“The only reason the Fed would give the green light to suspend or reduce the pace of aggressive rate hikes is not just the peak of inflation, but the deeper weakness in the economy,” she told CNBC on Tuesday.
Inflation is nearing a 40-year high as the Fed has hiked interest rates this year in an attempt to keep inflation in check.
But the central bank has suggested it could ease its approach if there is evidence that the U.S. economy is weakening. Rising interest rates are impacting consumer demand and levels of housing activity, making an economic contraction more likely.
The market’s next opportunity to assess the economy is when the August employment numbers are released on Friday. Sonders said positive reports reflected economic strength and were likely to encourage the Fed to continue raising rates.
“If labor market data remains strong, it will give the Fed green light to continue on its aggressive path,” he said.
Rising interest rates spiked investor concern lists last Friday when Federal Reserve Chairman Jerome Powell spoke in Jackson Hole, Wyoming.
He suggested the Fed plans to keep interest rates higher until inflation is fully subdued. did.
Mr. Sonders said Powell’s comments showed that the Fed’s rate hike campaign would not be hampered by a natural cooling in inflation, and that markets should not have been surprised by the Fed’s hawkish stance. I said yes.
“The macro narrative and the Fed-related narrative that developed around the time the market bottomed out was the pivot to rate cuts,” she said. “I don’t think the story made much sense.”
“I wouldn’t be surprised if we see some of this digestion now. I think it could have happened before Jackson Hole if people were paying attention,” Sonders added.
read more: Bank of America: Buy These 7 Stocks That Will Outperform The Market When The Fed Turns To Cut Rates