The Fed Can Still Cut in July, Here’s Why Markets Are Wrong – Kristina Hooper

The Fed Can Still Cut in July, Here’s Why Markets Are Wrong – Kristina Hooper

hey everyone I’m Jeremy saffr you’re
watching kit Cod news don’t forget to
subscribe to our channel for the latest
updates now today we’re breaking down
the latest US economic data which
revealed some challenging Dynamics the
economy expanded at a modest 1.6% annual
rate in the first quarter that’s at
slowest Pace since mid 2022 now this
deceleration is largely due to a
significant jump in Imports and a minor
accumulation of unsold good adding to
the complexity the personal consumption
expenditures or the p C price index a
key indicator of inflation closely
watched by the FED increased at a 3.1%
annual rate intensifying from
1.9% last quarter now after the data was
released this week investors are pricing
in only one rate cut this year in
September that’s according to the CME
fed watch tool UBS also saying here that
there’s a real risk of the FED raising
rates to 64 6.5% rather next year now to
help us and what this means we welcome
Christina Hooper the chief Global Market
strategist in Invesco uh joining us
today Christina thanks for coming on the
show thanks so much for having me yeah I
mean I want to start a little bit here
getting your reaction to the latest pce
data the core PC price index increased
at an annual rate of 3.7% in the first
quarter of the Year significantly above
the fed’s target of 2% and additionally
on a monthly basis the index Rose by 3%
in March matching the increase for from
February I guess the question is here uh
were you surprised by any of the
data well not too surprised once we got
the quarterly number we knew it wasn’t
going to be great uh to get today’s
report and I have to say though it was
slightly better than I think markets
anticipated so that’s the positive there
um but uh the reality is that in the
recent inflation data we’ve seen and
this has been a few uh months now um has
not been a great Trend so I have to
admit that but having said that it can
change rather quickly and so I
anticipate that we could very well see
in the coming months better data data
that convinces the FED that it can start
to cut rates even if it does so gently
interesting let’s impact that a little
bit more Christina because yesterday you
sent a tweet out that said uh I still
believe a Federal Reserve rate cut in
June and a total of three cuts of this
year are very very possible but markets
need some more data to change their
minds is this the data that you were
talking about has your mind changed
here so this is not the data I was
hoping for or talking about for sure and
so it seems far less likely that we’re
going to get to uh a June cut uh
although I still think there’s a tiny
chance of it I mean keep in mind if you
go back to June of
2022 the FED had messaged for for uh it
had signal for several weeks before that
meeting that it would be cutting that it
would be hiking rates by 50 basis points
at that meeting and instead they came in
surprised and hik rates by 75 basis
points and when asked what did it for
the FED um it was two data points that
they had received within days of the
actual meeting uh it was Michigan
inflation expectations and CPI so data
can change the fed’s mind and it doesn’t
have to be now of course I think they
were airing on the side of of caution no
one wants to be uh another Arthur Burns
in terms of a Fed that that let
inflation get a little out of control so
so certainly the FED is more sensitive
to letting inflation get out of control
than it is sending an economy into
recession especially if the data looks
good but I give you that illustration
just to say there is the possibility
that you could have strong enough data
that could change the fed’s mind and and
so um perhaps it’s far more realistic to
say there’s a real possibility of a July
Ray cut I still hold out hope um a lot
of Hope for that interesting so you’re
calling for
July I I I still saying 5 perent chance
in June okay I see okay you
know we were just talking a little bit
about you know the numbers that were
being released and you said that you
were actually surprised that they were
better than anticipated not saying too
too much but treasury secretary Janet
Yellen just I think today commented on
uh the weaker than expected data on the
first quarter output she believes the US
economy is performing quote very very
well and that inflation will return to
normal levels given the contrast between
her optimistic Outlook and the recent
GDP figures showing you know the 1.6%
growth rate uh why do you think she’s so
confident about the economy’s
strength well I think she’s seen a lot
of very positive economic data and not
too any data points that suggest the
economy is slowing but I think the
reality is the economy is slowing which
is what the FED wants to see uh of
course uh the slowing of the economy
this disinflationary process are are all
very imperfect and so you may see data
points that aren’t necessarily what you
want to see but the trend certainly
suggests that we’re moving in the
direction that the FED wants on both
counts so uh certainly treasury
secretary Yellen also wants to be a
cheerleader for the US economy so I
don’t think she’s going to talk it down
but we are seeing um more stress on
consumers if we look at credit card
delinquencies uh if we look at the
percentage of those that are giving
minimum payments in terms of servicing
their credit card debt um those all
suggest that stress is increasing and I
think that will continue you know one
could argue that perhaps it’s a two
speed economy um and and that there are
you know significant portion of
households that are still doing very
well and another portion that aren’t but
I think it will spread I don’t think
it’s going to be a severe slowdown but I
think of it as more of a bumpy Landing
yeah no that’s a good word to use bumpy
Landing a good sentence I mean the labor
market seems to remain really robust
here uh consumer spending continues to
drive the economic activity it almost
seems like job while jobless claims have
fallen and employment remains strong so
I’m kind of curious is you know with the
spending growing at a 2.5% rate last
quarter is there a POS a potential for
these positive Trends and labor
consumption to offset the negative
impacts of imports or these buildups
that we’re talking
about well that makes the assumption
that the labor market stays as strong as
it does today and as it is today I think
that is a big assumption to make we’ve
already seen an increase in unemployment
over the course of the last months and
we could very well see an increase from
here um and that of course will uh
impact the ability to spend um that will
impact the ability of of uh consumption
to be a counterveiling force so so I
would argue that you know what we’re
likely to see again is more data that
shows a cooling of the US economy not
dramatic but the risk is that the longer
that we keep rates as high as they are
today the more likely there’s going to
be significant damage to the US economy
yeah you know we talk about that
inflation and the costs on consumers
given the fed’s Dual mandate at what
point Christina do you believe inflation
risks May justify a shift in policy here
maybe the focus from supporting
employment to controlling price levels
more
aggressively well I think the FED has
done a lot of work to control prices uh
and that uh they’re getting close in my
opinion to having risks be rather
balanced where they have to worry more
about the potential for recession now of
course we’ll that will come into greater
Focus as we get more data um through the
second quarter of this year but I think
that could very well be the picture that
forms and that we don’t see you know
very sticky inflation but what we do see
is an economy that’s slowing enough that
the FED um thinks more about and is more
inclined to start cutting rates yeah I
mean we’re all hoping for those days
eventually here uh you know the first
quarter of 2024 saw significant surge in
Imports and this contributing to a
widening trade deficit that negatively
impacted the GDP the long-term
implications of these Dynamics could be
quite multifaceted for the US economy
um I’m just a little bit curious here
when we talk about this elaborate on how
trade Dynamics and you know these
Imports coming in might really affect
growth strategies for the
future well you know I think there are
going to be a lot of factors that impact
growth over time so I would point to
areas like artificial intelligence as
something and and technological
innovation investment as something that
can be a real boost to growth uh over
time um one could argue that um what we
see uh in terms of the economy going
forward and and one of the biggest
issues facing uh the US economy in the
past and other Western economies has
been a lack of investment that has led
to lower productivity that has impacted
growth and so that the greatest thing
that could happen um to the US economy
could be investment um investment in in
areas like Innovation that can uh
greatly improve productivity we just
haven’t seen the total Factor
productivity burst that we saw in the
decade between 95 and 2005 we haven’t
seen anything like that and I think um
that with the Advent of of artificial
intelligence adoption and investment in
those areas we could very well be
realizing a similar or even better um
period for total Factor productivity
yeah fascinating time I mean Tech Giants
Microsoft and alphabet both beat analyst
estimates when they reported their
quarterly earnings this week alphabet
shares surged as much as 12% hitting
their highest levels ever and pushing
alphabet’s valuation past the $2
trillion Mark I think Microsoft Rose
around the three and a half% you know we
keep seeing robust growth in cloud
computing Revenue driven significantly
by this whole AI Community as we keep
talking about is AI going to be the main
driver of economic growth in 2024
I don’t know if it’s going to be the
main driver of economic growth in 2024
but it certainly is laying a foundation
for uh a role as a significant driver of
economic growth for years to come what
it could very well be in terms of of a a
driving factor is again popularity of
specific stocks if we look at earnings
calls uh I think the references thus far
this season uh have have gone down a
little bit um but just the vast number
of companies that have referred to artif
artificial intelligence in their calls
is quite breathtaking and I think
hearkens back to the late 90s and the
adoption of the inter internet and that
kind of excitement that it created some
would would argue a little too frothy
excitement um given the the particular
stock but but it certainly is driving
interest and excitement and enthusiasm
for for a number of different stocks now
talk to me a little bit about investment
strategies here I mean are we going
after the picks and shovels maybe we’re
not buying alphabet maybe we’re not
buying you know um Microsoft but where
is the strategy here if this is going to
set us up for some future potential of
returns over the next few years uh what
is your strategy what would you
recommend for investors to watch out for
here well we’d like to take a long-term
view because most investors have a
longer time Horizon and so that means uh
unlike real estate where it’s location
location location it’s all about
diversification diversification
diversification and so it’s very very
important I think to make sure investors
have adequate exposure to those areas
that they may be underexposed to after
years of outperformance by for example
large caps um by growth uh parts of the
market by technology so having adequate
exposure to smaller caps and cyclicals
because we do know that a certain point
uh the fed and other central banks will
start cutting uh and that could very
well be the beginning of a re
acceleration in economies uh and that um
typically uh leads to or in fact uh
stocks discount that in advance of it
happening and so we tend to see small
caps perform better we tend to see
cyclicals perform better because they’re
arguably benefiting from that re
acceleration in the economy so so I
think it’s important to have exposure
there and of course investors um can
become too concentrated in areas like
the us because the US has has performed
well um so uh taking that sort of
inventory of one’s portfolio and
ensuring exposure to Emerging Markets
which which could benefit from a dollar
a weakening dollar when that starts to
happen um which can benefit from growth
Dynamics just in the emerging Emerging
Market space longer term um driven by
things like
demographics uh so I think being well
Diversified across and within asset
classes and that of course includes
adequate exposure to fixed income um I
think investment great credit is a sweet
spot right now but also exposure to
Emerging Market debt I believe makes
sense if one has a long enough time
Horizon and then having some
Alternatives areas that aren’t uh
closely correlated with other major
asset classes talk to me a little bit
more about the emerging markets and what
you’re seeing I mean it’s an interesting
year 50% of the population going into
elections this year um where are you
looking to in the Emerging Market space
is there any particular countries as we
continue to see economic data being
released from Global
places I think there are a lot of
opportunities in Emerging Markets but
let me focus in on Asia em because I
think there is a significant opportunity
in that space demographics in a number
of of Asia em countries look really good
um now India valuations are High um but
there is significant growth potential
other other economies have lower
valuations their markets have lower
valuations and and somewhat similar
demographic profile um and and of course
I think there’s this benefit that will
come from a Japanese economy that’s
quite good uh a a Chinese economy that
looks poised to re accelerate and of
course as we know Supply chains have
Diversified so there’s more
participation by different countries in
Asia so that’s just one example of many
but I think that Emerging Markets uh is
is an area with significant potential uh
given you if one is patient enough
because I don’t know if it’s going to
happen overnight but I think yeah even
looking out at two years I think there’s
a lot of opportunity there okay what
about the US in terms of just a forecast
Before I Let You Go I mean we see a
little bit of a pullback on the S&P but
it seems like there’s still a lot of
breath in this market has anything
surprise you what’s your forecast going
towards the US Equity Market this year
well I I wouldn’t be surprised to see
more of a pullback uh I don’t think we
are going to see very strong sentiment
until we get better data that suggests
the FED can start to cut rates um but I
think it’s important to note um that
this is an area in which while
valuations can be extended in general
there’s a lot of attractive value
opportunities within the US market
including uh solid dividend payers so I
think that we’re likely to see continued
increase in breath um and and that’s a
good thing that’s something that suggest
we’re going to see a reacceleration in
the economy G know one more question I I
want to talk a little bit about gold I
mean we’ve had the world gold Council
talk about uh the Central Bank demand in
China and India it’s increasing it seems
as though consumers are going Costco is
selling millions of month talk to me a
little bit about what’s happening in the
gold market as you know the geopolitical
concerns are out there continue to
be well it just seems like there is a
Confluence of factors driving this
popularity in Gold I think first and
foremost uh we of course have these
Central Bank purchases and and a lot of
that has to do with concerns uh Bond
vigilante concerns right will there be
enough buyers uh of us treasuries uh is
the fiscal situation in the United
States sustainable so that’s certainly
one driver uh another is just that gold
has emerged and I I think this is
related to that gold has emerged as the
geopolitical risk hedge of choice um and
and that has happened over several years
and so as geopolitical risks grow and
we’ve seen popularity in Gold grow and
you know if when we go back and look
early in the last decade when US debt
was downgraded and there was a real risk
off reaction we saw investors flock to
us treasuries even though they were the
ones that had been they were the asset
class that had been downgraded uh and I
think that speaks to just how us
treasuries used to be the you know risk
hedge of choice the safe haven asset
class of choice and that really has
changed a lot certainly it’s it’s still
something of of a um a safe haven asset
class but gold has really uh taken um um
you know a a bigger bigger role and has
become I think the preeminent Safe Haven
as a class of choice and then of course
you have you know a lot of countries
believing that the United States has
weaponized the US dollar through
sanctions uh and so I think there’s a
real reluctance to get close to anything
like the US dollar uh anything like us
treasuries and I think that also of
course has fueled uh more of an interest
and desire uh to own gold yeah it’s been
fascinating to watch uh do you have a
price forecast for gold here going into
the the year you’re talking about supply
and demand I mean demand’s not going
away here are we going to see these
increase in in gold
prices so I don’t want to give you the
false Precision of a an actual Target
but I will say I believe directionally
it’s going to move higher think of all
the elections we have this year think of
all the potential geopolitical risks as
well as the natural desire of central
banks to buy gold and then of course
with Costco selling gold who knows how
much higher it’ll go all right I
appreciate it Christina Hooper of course
the chief Global Market strategist at
investco thanks for joining us today
Christina I really appreciate your time
and your Insight you helped me
understand a couple things here thanks
so much for having me appreciate it I’m
Jeremy sapper for all of us here at kco
news thank you for watching don’t forget
to subscribe to our Channel we will see
you next time
[Music]

Jeremy Szafron, Anchor at Kitco News, interviews Kristina Hooper, Chief Global Market Strategist at Invesco, about current economic trends and their implications for global markets. Hooper dives into recent U.S. economic data like the PCE, Federal Reserve policies, and the potential impact of AI on future economic growth. Don’t miss her insights on the challenges and opportunities for investors in 2024 and her take on the gold market.

Follow Jeremy Szafron on X: @JeremySzafron (https://twitter.com/JeremySzafron)
Follow Kitco News on X: @KitcoNewsNOW (https://twitter.com/kitconewsnow)
Follow Kristina Hooper on X: @KristinaHooper (https://twitter.com/KristinaHooper)

0:00 – Introduction
1:24 – Analyzing the PCE Data
2:34 – Federal Reserve Rate Predictions
4:41 – Economic Optimism from Treasury Secretary
6:20 – Labor Market Resilience
8:55 – Trade Deficit and Economic Impact
9:15 – AI’s Role in Economic Growth
12:00 – Investment Strategies for 2024
14:38 – Opportunities in Emerging Markets
16:54 – Gold Market Dynamics

#EconomicAnalysis #FederalReserve #InflationData #invesco #KitcoNews #GlobalEconomy #AIimpact #EmergingMarkets #GoldMarket #InvestmentStrategies #goldprices #gold #equities #economy #fed #interestrates
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