Markets don't need Fed rate cuts to move higher, strategist says

SoFi head of investment strategy Liz Thomas joins Market Domination Overtime with Josh Lipton to discuss the likelihood of the Federal Reserve cutting interest rates in September. Although markets are still largely pricing in a September rate cut despite Thursday's hot inflation report, Thomas thinks it is not as certain as most seem to believe.

To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime.

Video Transcript

00:00 Speaker A

Meanwhile, stocks falling most fall falling most of the day, closing near the flat line after a hotter than expected inflation print. This fresh data possibly complicating the Fed's rate cut decision for September. My next guest certainly thinks so. Joining me now got Liz Thomas, SoFi head of investment strategy. Liz, great to see you. So we get that PPI print, Liz, this morning. Um, you know, the market is betting on that cut next month, Liz. They expect it. Should the market be betting on that cut?

01:00 Liz Thomas

Well, the market is betting on it and the market wants it very, very badly. And I think the bond market continues to try to send that signal. The debate before today had been whether or not the cut would be 25 or 50 basis points. Now, I think we've taken 50 basis points off the table with this print. But I have to say I'm surprised that the likelihood of a cut didn't come down further after today's PPI print. Now, part of it could be that PPI just isn't the headline maker that CPI or even PCE is because it's not consumer-based. But what you have to really pay attention to in this report is what happened which was outside of expectation. So a lot of the belief has been that tariffs have been absorbed by companies. Businesses are just eating them and letting them go into their margins. That's not what this report showed. So now you have to sort of expect that if businesses aren't eating them on the wholesale side, maybe they are planning on passing them through to to the consumer, and we just haven't seen that yet in the consumer inflation reports. That can take anywhere from three to six months, so we've still got some time and still some question marks.

02:53 Speaker A

Let me ask you this. What about those economists I hear who say, you know, listen, inflation, it is not where J. Powell wants it. It's above target, but actually their argument would be, the Fed is now really focused on the labor market. That's what they're concentrating on, and that's why the cut is a lock next month. What do you say to that?

03:34 Liz Thomas

Well, we've had we had one weak labor report. Now, it was mostly the weakness in it was about the revisions, not even the labor report itself. But I also would have to say, we haven't seen a contracting labor report. Even with those downward revisions last month, nothing contracted. So we haven't been losing jobs. We're just adding them at a much slower pace than we thought we were. If we get another weak labor report in the August numbers, so we'll get that early September, then I think it is more likely that the Fed goes ahead with a 25 basis point cut. If we get a hot labor report, it complicates complicates things a lot. So I think in this near-term scenario when we're looking at between now and September 17th for the Fed meeting, the labor report matters a lot. Over the longer term, though, I take Jerome Powell at his word, and he has said multiple times, high inflation doesn't work for anybody. It doesn't work for businesses. Now I'm paraphrasing. It doesn't work for businesses. It doesn't work for the economy. It doesn't work for consumers. So I think over the long term, they are going to have to really look at inflation. And the jobs market, too, we're at 4.2% unemployment. There's room for that to move up before they're going to get really uncomfortable. So I wouldn't hold that as the only thing that they're going to be concerned with.

05:27 Speaker A

Liz, does the market need a cut to move higher?

05:35 Liz Thomas

This is a controversial opinion. I don't think it needs a cut to move higher right now. I think the market really wants a cut. That's not to say that if expectations for a cut come down, yes, I do think we see volatility. But the market really has been driven lately by good, solid fundamentals, and yes, a lot of enthusiasm still over the AI theme and this technology super cycle. But I think that's warranted over the long term. Does it need a cut in order to keep having strong fundamentals from companies? Probably not. Does it need a cut to justify some of these high valuations? Perhaps. So I think that's the place that we're at right now, when the stock market is looking at the likelihood of a cut. A cut would help everybody feel perhaps a little bit better about these high valuations. Related Videos

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