Finance

Slower pace ahead for rate cuts

Published

4 months ago

January 8, 2025

Federal Reserve officials at their December meeting expressed concern about inflation and the impact that President-elect Donald Trump‘s policies could have, indicating that they would be moving more slowly on interest rate cuts because of the uncertainty, minutes released Wednesday showed.

Without calling out Trump by name, the meeting summary featured at least four mentions about the impact that changes in immigration and trade policy could have on the U.S. economy.

Since Trump’s November election victory, he has signaled plans for aggressive, punitive tariffs on China, Mexico and Canada as well as the other U.S. trading partners. In addition, he intends to pursue more deregulation and mass deportations.

However, the extent of what Trump’s actions will be and specifically how they will be directed creates a band of ambiguity about what is ahead, which Federal Open Market Committee members said would require caution.

“Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said. “As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”

FOMC members voted to lower the central bank’s benchmark borrowing rate to a target range of 4.25%-4.5%.

However, they also reduced their outlook for expected cuts in 2025 to two from four in the previous estimate at September’s meeting, assuming quarter-point increments. The Fed cut a full point off the funds rate since September, and current market pricing is indicating just one or two more moves lower this year.

Minutes indicated that the pace of cuts ahead indeed is likely to be slower.

“In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” the document said.

Moreover, members agreed that “the policy rate was now significantly closer to its neutral value than when the Committee commenced policy easing in September. In addition, many participants suggested that a variety of factors underlined the need for a careful approach to monetary policy decisions over coming quarters.”

Those conditions include inflation readings that remain above the Fed’s 2% annual target, a solid pace of consumer spending, a stable labor market and otherwise strong economic activity in which gross domestic product had been growing at an above-trend clip through 2024.

“A substantial majority of participants observed that, at the current juncture, with its policy stance still meaningfully restrictive, the Committee was well positioned to take time to assess the evolving outlook for economic activity and inflation, including the economy’s responses to the Committee’s earlier policy actions,” the minutes said.

Officials stressed that future policy moves will be dependent on how the data unfolds and are not on a set schedule. The Fed’s preferred gauge showed core inflation running at 2.4% rate in November, and 2.8% when including food and energy prices, compared with the prior year. The Fed target’s inflation at 2%.

In documents handed out at the meeting, most officials indicated that while they see inflation gravitating down to 2%, they don’t forecast that happening until 2027 and expect that near-term risks are to the upside.

At his news conference following the Dec. 18 rate decision, Chair Jerome Powell likened the situation to “driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

That statement reflected that mindset of meeting participants, many of whom “observed that the current high degree of uncertainty made it appropriate for the Committee to take a gradual approach as it moved toward a neutral policy stance,” the minutes said.

The “dot plot” of individual members’ expectations showed that they expect two more rate cuts in 2026 and possibly another one or two after, ultimately taking the long-run fed funds rate down to 3%.

Finance

TMUS, GOOGL, TSLA, INTC and more

Published

16 hours ago

April 25, 2025

Business Finance News

Finance

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Published

18 hours ago

April 25, 2025

Business Finance News

Finance

T. Rowe Price likes stock picking now

Published

22 hours ago

April 25, 2025

Business Finance News

One of the largest active ETF managers on leveraging fund tactics in new ways

It appears T. Rowe Price is benefitting from the record growth in actively managed exchange traded funds.

Tim Coyne, the firm’s head of ETFs, reports the firm is seeing significant growth in the area — listing the T. Rowe Price Capital Appreciation Equity ETF (TCAF) and T. Rowe Price U.S. Equity Research ETF (TSPA) as two established strategies that can satisfy investor demand.

“I think having that professionally managed portfolio is really beneficial to clients,” Coyne told CNBC’s “ETF Edge” this week. “We’re seeing just… greater volatility [and] uncertainty across both the equity and fixed income markets.“

According to Coyne, the T. Rowe Price Capital Appreciation Equity ETF suits investors who are looking for long-term growth.

“The objective of the fund is to outperform the S&P 500 with lower volatility and greater tax efficiency,” he said. “It’s also a more concentrated portfolio, typically holding around a hundred names.”

As of April 24, the fund’s top holdings include Microsoft, Amazon, and Apple according to the T. Rowe Price website. But it’s not all Big Tech. The ETF also features smaller positions in companies like Becton Dickinson and Roper Technologies.

The T. Rowe Price Capital Appreciation Equity ETF is down about 5% so far this year while the S&P 500 is off about 7% However, the ETF is up close to 8% over the past year — roughly identical to the S&P 500’s performance.

Coyne notes the T. Rowe Price U.S. Equity Research ETF follows a similar strategy, but with a heavier weighting in top tech stocks.

“This is more of a large-cap growth product [T Rowe Price U.S. Equity Research ETF],” he said. “There are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research is going into the stock selection.”

Both the T. Rowe Price U.S. Equity Research ETF and S&P 500 are down around 7% since the beginning of the year. Meanwhile, the fund is up almost 9% over the past year. That’s less than one percent better than the S&P 500’s performance.