Fed Holds Steady, But Stocks Could Surge on Summer Rate Cuts

To cut or not to cut; that is the question. And yesterday, to many folks’ chagrin, the Federal Reserve decided not to cut and hold interest rates steady instead.

By now, you’ve probably read a handful of takes on the central bank’s most recent meeting. Most saw it as a “snooze fest.” The Fed didn’t hike or cut rates. And at the post-meeting press conference, Fed Board Chair Jerome Powell played his cards close to his chest, not giving much insight as to what the central bank will do next. He simply emphasized that the Fed remains in “wait-and-see” mode. 

How boring. 

Or maybe not… 

While many saw yesterday’s Fed meeting as a nonevent, we still believe it was the start of a sneaky summer rally – one that could power AI stocks to new heights by July… 

Why the Fed ‘Snooze Fest’ Speaks Volumes: June Rate Cuts Are Still on the Table

Our bullishness isn’t inspired by what the Fed did yesterday. Rather, it’s all about what it didn’t do. 

The Federal Reserve didn’t shut the door to a June rate cut.

During yesterday’s press conference, the theme of Powell’s message was “wait and see.” He and his fellow Fed members see rising risks to both of the central bank’s mandates – full employment and stable prices. So, the board wants to wait and see how labor and inflation risks evolve over the next few months before making a call on interest rates. 

Makes sense. 

But reading between the lines of that messaging, the implication is that if the economic data shifts more strongly toward labor market risks and away from inflation risks, then the Fed will cut interest rates. 

That is exactly what should happen over the next month – before the Fed’s next meeting in the middle of June. 

The Federal Reserve is worried that tariffs will cause reinflation. But the data shows that’s just not happening. 

Tariffs started in earnest in March, followed by “Liberation Day” levies in early April. In other words, we’re now one to two months into the “tariff era”; and yet, there’s no reinflation. 

The overall U.S inflation – as measured by the Consumer Price Index – was 2.8% in February, before any tariffs hit. And according to the Cleveland Fed, it dropped to 2.4% in March and 2.3% in April. Here in May, it is running at 2.4%. 

It seems that inflation in the “tariff era” has stabilized right around the Fed’s 2% target – meaning that tariff-induced reinflation fears are likely overstated. 

The more CPI reports we get that show stable inflation, the more the Fed will perceive inflation risks as abating.