Fed Gov. Waller's Talk Tempers Rate Cut Hopes: Fed In No Rush, Rattles Investors
Portfolio Pulse from Piero Cingari
Fed Governor Waller's comments at The Brookings Institution have tempered expectations for interest rate cuts, with a focus on stable economic activity and managing inflation. Waller suggested the Fed is not in a hurry to reduce rates, citing a strong economy and a gradual approach to reaching the 2% inflation target. The market reacted with reduced expectations for a March rate cut, a rise in Treasury yields, and a downturn in stocks and bonds, affecting ETFs like TLT, SPY, and IWM.
January 16, 2024 | 9:56 pm
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NEGATIVE IMPACT
The iShares Russell 2000 ETF (IWM) saw a 1.4% drop, likely due to the decreased expectations for a rate cut and Waller's cautious economic outlook.
The shift in rate cut expectations and the rise in Treasury yields have particularly affected small-cap stocks, leading to a decline in IWM's value.
CONFIDENCE 80
IMPORTANCE 75
RELEVANCE 85
NEGATIVE IMPACT
The SPDR S&P 500 ETF Trust (SPY) experienced a 0.5% decline in response to Waller's remarks and the subsequent shift in market expectations.
The reduced likelihood of an imminent rate cut has led to a more cautious investor sentiment, negatively affecting stock ETFs like SPY in the short term.
CONFIDENCE 80
IMPORTANCE 75
RELEVANCE 85
NEGATIVE IMPACT
The iShares 20+ Year Treasury Bond ETF (TLT) fell by 1.9% following Waller's comments, which led to a rise in Treasury yields.
Waller's comments have led to a decrease in rate cut expectations, causing Treasury yields to rise and bond prices to fall, directly impacting TLT's performance.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90