Hello,

Some have been waiting for the Fed to lower interest rates and confirm it will ease monetary policy, which may result in lower home mortgage rates, credit card rates, auto loans, and so forth.

However, the Fed went another route at the close of its two-day meeting on May 1. They took an indirect approach to easing, and if you weren’t following closely, you may have missed it.

Chairman Powell will reduce the cap on maturing Treasury securities, meaning the current rate of $60 billion will now be $25 billion.

To some, that indicates the Fed is committed to lowering short-term interest rates later this year. To others, it suggests the Fed wants to keep the system operating smoothly and take some financial pressure off mid-sized banks.

But to almost every economist, it's a signal that the Fed is moving toward easing and away from tightening.^1,2

A slight policy change by the Fed after each meeting doesn’t amount to much. But when we examine the Fed’s decisions over the past several meetings, we can start to see emerging patterns.

Fed Chair Powell said the new policy would start in June, so it’s too early to tell how that will influence the financial markets.

As always, we’ll keep an eye on things and we’ll reach out directly if we feel a strategy change is warranted.  Don’t hesitate to contact us if you have any questions or concerns.

Watchfully,
 

Your Eagle Wealth Team

The Week on Wall Street

Stocks notched a solid gain last week, rallying behind upbeat earnings, a dovish Fed, and mixed economic data.
 

Stocks Pop, Drop, Then Rally

Markets began the week with an upward bump as positive news from some mega-cap tech companies outweighed disappointing updates from other tech names.

The tone quickly changed on Tuesday as higher-than-expected Q1 wage growth triggered inflation and interest-rate anxiety—just as the Federal Open Market Committee kicked off its third meeting of the year. Each of the three major averages dropped more than 1.5 percent on the last trading day of April.4

When the Fed announced it was holding rates steady on Wednesday, stocks initially rallied on the news, but sellers got the upper hand late in the trading session, and prices ended the day slightly down.5

On Thursday, stocks trended higher as more companies reported upbeat Q1 results. Then, on Friday, stocks pushed higher after the April jobs report indicated that unemployment ticked up and the economy slowed. The 175,000 jobs created in April represented slower growth than the over 300,000 added in March and less than the 240,000 economists expected. Some Fed watchers believe that the news bolstered chances that the Fed may adjust rates sooner rather than later.6
 

Uncertain Hurtin’

Markets hate uncertainty, so Fed Chair Jerome Powell attempted to clarify the Fed’s stance on the outlook for interest rates at the close of its two-day meeting. Determining what’s next for interest rates in the context of stubborn inflation is no simple task. But Powell was as straightforward as possible at the press conference. “I think it’s unlikely that the next policy rate move will be a hike,” he said. “I’d say it’s unlikely.”7,8

Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance. Source: YCharts.com, May 4, 2024. Weekly performance is measured from Monday, April 29, to Friday, May 3. ROC 5 = the rate of change in the index for the previous 5 trading days. TR = total return for the index, which includes any dividends as well as any other cash distributions during the period. Treasury note yield is expressed in basis points.

1. Reuters.com, May 1, 2024. “Fed announces reduction in balance sheet runoff pace.”

2. Bankrate.com, May 2, 2024. “The Fed’s latest meeting wasn’t just about interest rates. Here’s why you shouldn’t overlook its balance sheet announcement.”

3. Pattern.com, April 26, 2023. "The Force is Strong with Star Wars Day Consumer Demand"

4. The Wall Street Journal, May 3, 2024

5. CNBC.com, May 1, 2024

6. The Wall Street Journal, May 3, 2024

7. The Wall Street Journal, May 3, 2024

8. CNBC.com, May 1, 2024

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