THE UNTHINKABLE IS HAPPENING: No Rate Cuts in 2024 Would Upend the Financial Markets!
We certainly can’t blame the market for not taking Federal Reserve Chairman Jerome Powell at his word. After all, dollar inflation was never “transitory,” and the American middle class has experienced pain even if Powell wants to deny it.
On some level, it makes sense if the market doesn’t believe Powell when he says that a March interest rate cut isn’t in his base case And isn’t likely. If central bankers lacked credibility before, why should anybody believe them now?
This helps explain why the market continues to assume that the Fed will cut interest rates half a dozen times this year. The stock market didn’t collapse when there wasn’t a rate cut in late January, but the March FOMC meeting will be much more crucial in terms of interest rate policy for the remainder of the year.
Here’s where it really gets interesting, though. The true contrarian trade might be to assume that there won’t be any interest rate cuts in 2024. This doesn’t mean you’d actually have to believe what comes out of Powell’s mouth, just that inflation won’t just keep going down and might start to rise again.
Powell and the FOMC have said that they need to be more confident that inflation is heading toward his 2% target. Any disruption, such as a reversal higher in oil and natural gas prices, could make it much more difficult for the Fed to start cutting interest rates this year.
Now, we’re starting to see experts on Wall Street consider the previously unimaginable notion that the Fed won’t cut interest rates at all in 2024. Bank of America strategists even floated the idea that no central banks will cut their interest rates.
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“Even if a scenario of central banks staying on hold this year may seem completely unrealistic to the consensus, it is still worth considering its market implications in our view, as we are puzzled by the aggressive market pricing of rate cuts this year,” the Bank of America strategists argued.
They also wrote, “[N]obody has considered a scenario in which no central bank cuts rates this year,” though a handful of contrarian thinkers are waking up to the idea that the assumption of half a dozen rate cuts is wrong. So, what are the implications of interest rates potentially staying higher for longer in 2024?
First of all, the market won’t immediately come to the realization that the Fed isn’t cutting rates in 2024 until it’s completely obvious later in the year. It’s entirely possible that the market will continue to live in a state of denial and push the S&P 500 and NASDAQ higher for a while.
Sooner or later, however, the financial markets have to face reality. It can be painful for investors when this happens, and unfortunately, many people have their savings and retirement money stuck in large-cap stock indices without any real diversification.
This is just another reason why diversifying into alternative asset classes is more crucial than ever now. If inflation doesn’t just keep going down like the market assumed it would, anti-inflationary assets like gold, silver, and Bitcoin will be in demand and poised to rise sharply.
It’s the contrarian trade that could generate a lot of wealth for properly positioned investors – and we’re actually looking for a huge opportunity this weekend. In other words, investors will soon need to start thinking about the unthinkable because the path is being paved for the impossible to happen this year.
Chief Editor, CrushTheStreet.com
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