Stock markets will watch the Federal Open Market Committee’s September meeting on September 14-15, 2024. Although investors priced in the 25 bps and up to 50 bps cut, the Fed stated its neutral to dovish policy for several months.
The Fed’s action on Wednesday will matter less than what it says. For example, JPMorgan (JPM) expects a 50 bps cut. Others expect an impossible 100 bps in 2024. Readers should listen closely to Fed Chair Powell’s commentary on the job market and inflation heading into 2025.
The Fed may signal an orderly 25 bps rate cut at each meeting between now and 2025. That would give the central bank time to react to the economic data. If unemployment unexpectedly rises in a month, the Fed has the flexibility to implement a jumbo rate cut of 50 bps.
Normally, investors may buy financial stocks to take advantage of the policy decision. That changed after the Fed was considering higher capital requirements. On September 10, Federal Reserve Vice Chair for Supervision Michael Barr unveiled a 9% increase in capital requirements. Banks like JPMorgan, Citigroup (C), Goldman Sachs (GS), Bank of America (BAC), Wells Fargo (WFC), and Morgan Stanley (MS) fell on the day.
In the medium term, those bank stocks are attractive buys. Falling interest rates boost economic activity. Banks thrive when transaction volumes rise.
