Former U.S. Treasury Secretary: The Fed may not end up cutting rates sharply

Former U.S. Treasury Secretary Summers said the Fed's monetary policy is not as tight as investors may think, which makes the market more likely to enter a bubble zone.

Summers said in an interview with Bloomberg last Saturday that the U.S. economy remains strong, employment is good, and economic growth remains resilient. This surprised some Wall Street giants such as JPMorgan Chase CEO Dimon and Bridgewater founder Dalio, who had previously predicted that the economy would fall into recession as the Fed began to fight inflation.

But Summers pointed out that the strong U.S. economy may actually be bad news for U.S. stocks because it shows that the Fed's monetary policy is not as tight as the market thinks.

Previously, the Fed has raised interest rates by 525 basis points to fight inflation, but Summers estimates that the neutral interest rate level that neither suppresses nor stimulates economic growth has increased from about 2.5% to about 4%.

“I think this is going to continue for a while,” Summers said of higher rates. He also warned: “The Fed may not end up cutting rates as much as the market now expects.”

Markets could be disappointed later this year as investors are eagerly anticipating a big rate cut from the Fed in 2024. The market currently sees a 57% chance of a 100 basis point rate cut or more by the end of the year, according to the Fed’s CME tool.

But Summers warned that the odds of no rate cuts by the Fed in 2024 may have increased slightly to more than 15%, which is bearish for stocks.

Stocks could also show signs of trouble given that monetary policy is not as restrictive as the market believes. The S&P 500 is approaching a series of all-time highs in 2024, a winning streak that market experts warn is unsustainable.

Summers said: "We are at least on the edge of a bubble. I don't think the financial markets are showing obvious bubble characteristics as in other periods. But it doesn't mean we are far away from that situation. #非农就业数据即将公布 #Telegram创始人获保释 #美联储何时降息？ $BTC $BTC $BNB