Dollar Hits Multi-Year Lows as Economic Worries Accelerate
The economic skeptics believe tariffs will soon take a toll, while the bulls believe rates should be slashed immediately.
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The buck is under pressure, and interest rates are falling as pressure grows on the Fed to cut interest rates as soon as July. Pres. Donald Trump is contemplating the possibility of naming a new Fed chair now, even though Jerome Powell’s term does not end until next year.
The debate over interest-rate cuts highlights the economic issue that is a concern for most of the stock market bears. That concern is that the impact of tariffs has yet to be felt, and there is sure to be increased inflationary pressures and slowing growth. Trump and his economic supporters contend that inflation is well-controlled and that the failure of the Fed to cut rates more aggressively is extremely costly to the economy.
Powell claims that he needs more data before he can be confident that a rate cut won’t cause a surge in inflation. This debate has been going on all year, and, so far, the bulls have been winning the argument. Indications of economic slowing are showing, and we're seeing slight increases in inflation, but the disaster that the economic skeptics have predicted has not occurred. They contend that it is just a matter of time, but they have been wrong for so long that their credibility is stretched.
This debate over the economy's immediate future is heating up, just as the indexes start to test all-time highs and investors start to anticipate second-quarter earnings season. Many stocks have aggressive valuations, which is going to increase the risk of a sell-the-news reaction when earnings reports start to roll in. Last quarter, many companies were unable to provide guidance due to tariff uncertainty, and that hasn’t changed much. On Friday, the market deals with personal consumption expenditure inflation data and then the Russell Index rebalancing at the close. It is typically one of the highest volume days of the year and will distort the charts of many individual stocks. We have a positive outlook on the way, but the mood is mixed, and momentum is limited.
At the time of publication, DePorre had no position in any security mentioned.
