Expectations of multiple Fed rate cuts this year fall short

For investors, the notion that the U.S. would cut interest rates this year was probably one of the biggest and most important trading theses at the start of 2024, contributing to a fundamentally optimistic view and driving large-cap and tech-dominated U.S. stock indexes to record highs in June. But May's jobs report unexpectedly upended that notion, while complicating where policymakers should go from here. Jeffrey Cleveland, director and chief economist at Payden Rygel, said the case for a rate cut at the start of the year was built on hopes that inflation and job growth would cool off, but both expectations have so far failed to materialize. If the economy continues to grow and avoids a recession, the stock market will continue to rise and hit record highs over the next six to 12 months. If the Fed does not cut interest rates while inflation remains high, our view is that the environment for continuing to hold Treasuries may not be so bad. Analyst Sean Snaith said May's surprising jobs report was not good news for the Fed and "should eliminate any hope of a rate cut this year."