Investors and analysts eagerly await the July Federal Open Market Committee (FOMC) decision on whether the federal funds rate will be cut.
What Happened: The July FOMC meeting is held July 30 and 31 and will likely be the eighth straight meeting with federal funds rates remaining the same at 5.25% to 5.50%.
Easing inflation over the past several months has led to an increasing likelihood that the Fed could cut federal funds rates at the July meeting or the September meeting set for Sept. 17 and Sept. 18.
Benzinga recently asked readers: "Should the Fed cut rates this week or wait until September?"
The results were:
- Cut rates this week: 49%
- Hold and cut rates in September: 30%
- Don't cut rates this year: 21%
Nearly half of respondents believe the Fed should cut rates on Wednesday. Ranking second was cutting the rates in September, while an option of not cutting rates at all in 2024 received 21% of the vote.
Following the July FOMC, there are scheduled FOMC events in September, November and December, which could make the likelihood of no cuts this year minimal barring any setbacks in inflation data.
In total, 79% of those polled believe the Fed should cut rates in either July or September.
With the July FOMC coinciding the week of quarterly earnings reports from several Magnificent 7 stocks, including Microsoft, Apple, Amazon and Meta Platforms, Benzinga also asked which key item was more important.
"What is more important to the markets: earnings or the Fed rate cut decision?" Benzinga asked.
The results were:
- Earnings: 54%
- Fed rate cut decision: 46%
Read Also: Will Powell Hint At September Rate Cut? What Major US Investment Banks Expect From Fed Meeting
Why It's Important: Experts now expect a rate cut to happen in September with the potential for the rate to also be lowered in November and December. The three rate cuts could take the federal funds rate down to between 4.5% and 4.75%.
There is also an increasing likelihood of more fed rates cuts in the first half of 2025, according to market economists.
"Encouraging inflation news and a further rise in the unemployment rate have pushed Fed officials closer to cutting," Goldman Sachs economist David Mericle said in a recent note.
Mericle said the July CPI report would be enough to lead to a September rate cut.
Investors anticipating a rate cut in July or September could be the reason that small cap stocks have been moving recently.
The iShares Russell 2000 ETF IWM is up 9.7% over the last month, outperforming the SPDR S&P 500 ETF Trust SPY, up 0.9% in the same time period. The small cap IWM ETF still trails the year-to-date performance of the SPY at +10.9% versus +15.7%.
Small cap stocks are often viewed favorably after rate cuts as the companies can sometimes have higher debt levels and borrow at cheaper rates. Historic data also points to small caps outperforming large caps after past rate cuts.
Read Next:
The study was conducted by Benzinga in July 2024 and included the responses of a diverse population of adults 18 or older. Opting into the survey was completely voluntary, with no incentives offered to potential respondents. The study reflects results from 105 adults.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
