Hartnett of Bank of America Warns Fed Rate Cut Could Indicate Economic Troubles

According to strategists at Bank of America Corp., a Federal Reserve interest rate cut could signal potential trouble for the economy. Despite rising US equities since October, higher interest rates have been impacting investors’ confidence. However, optimism remains that the central bank will intervene before major economic damage occurs.

Michael Hartnett, a strategist at Bank of America, believes that a Fed rate cut would be the first sign of trouble and potentially lead to a hard landing if there is an increase in confidence in lower rates in the latter half of 2024. Traders have been delaying expectations of a Fed rate cut, but now anticipate the first one in September. If traders start betting heavily on a rate cut and cyclical stocks fail to improve, bonds could outperform as concerns about significant economic slowdowns rise.

The upcoming jobs data set to be released on Friday will provide further insight into the US economy’s health. Expectations are for a slight acceleration in job growth in May, which would indicate a slowing trend in average job growth over the last three months. Any indication that the labor market is still strong could unsettle the market and push back the likelihood of a rate cut even further.

Despite these uncertainties, investors continue to invest in stocks, with US equity funds receiving $4.6 billion in inflows during the seventh week according to BofA citing EPFR Global data. Investment-grade bonds also received $5.8 billion in inflows during this period, indicating investors’ preference for stability amid economic uncertainty.

By Sophia Gonzalez

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