Hartnett from Bank of America Warns that Federal Reserve’s Rate Cut Could Be Troubling for Economy

Bank of America Corp. strategists believe that a Federal Reserve interest rate cut could indicate trouble for the economy. Despite a strong economy and company earnings, US equities have been rising since October in the face of higher interest rates. Investors are hopeful that the central bank will begin to ease policy before any significant harm is done to economic growth.

Michael Hartnett of Bank of America suggests that a Fed rate cut could be the first sign of trouble, with the likelihood of a hard landing increasing if the market becomes more certain of lower rates in the latter part of 2024. Traders have been postponing expectations of a Fed cut, but now anticipate the first one in September. If traders increase their bets on a rate cut and cyclical stocks fail to rise, bonds will outperform as concerns about a significant slowdown grow.

Upcoming jobs data will offer more insight into the US economy’s health. It is expected to show a slight increase in May compared to the previous month, leading to a decline in average job growth over the past three months. Any indication that the labor market is still strong could unsettle the market and further delay the chances of a rate cut.

Despite this uncertainty, investors are still putting money into stocks, with US equity funds receiving $4.6 billion in the seventh week of inflows. Investment-grade bonds also saw inflows of $5.8 billion, marking the 32nd consecutive week of positive flows.