Michael Darda on Fed Rate Cuts: Wary of Fanning Cut Expectations

Fed's September Rate Cut Decision

• 🎯 Michael Darda believes the Fed will likely implement a 25 basis point rate cut in September, as it is largely priced into the market.
• ⚠️ He notes that a year ago, there was a stronger case for cutting rates due to rising unemployment and lower inflation expectations, indicating a greater risk of the Fed falling behind the curve.
• 💡 Today, that sense of urgency is less apparent, though the cut is still expected.

Concerns Over Future Rate Cut Expectations

• 📈 Darda advises the Fed to be cautious about over-stimulating expectations for future rate cuts.
• 💰 He suggests that signaling well over 100 basis points of cuts in the coming year could be counterproductive.

Q3 Economic Outlook and Fed Guidance

• 📊 Current data suggests Q3 is shaping up to be solid for the economy, with consumer spending and real GDP growth tracking above 2%.
• 📉 Inflation, as measured by the GDP price deflator, is expected to run just below 3% for the quarter.
• 🗣️ Given this environment of approximately 5% nominal growth, Fed Chair Powell is unlikely to signal any dramatic moves to lower rates, and will likely maintain a data-dependent stance.
• 🤫 Expect Powell to remain tight-lipped regarding forward guidance at the upcoming press conference.