As stated in our previous note, many economic indicators remain strong. However, some recent economic data and trade uncertainties have increased the market projections of a potential Federal Reserve (Fed) rate cut. The Fed announced earlier this year that instead of raising rates two times during 2019, they would pause as they assimilated new economic data.
The Fed is concerned about how potential tariffs may affect the economy. And while measured inflation still remains relatively low, the Fed is closely monitoring since economic growth has been strong. There has also been some mixed data recently, including a fairly weak May non-farm payrolls number (representing employment changes). This payroll number, released June 7, showed an increase of 75,000, but the market had expected 175,000. Unemployment still remains very low at 3.6%.
It is important to note that the expectations for a rate cut are changing daily and we should get more clarity from the Fed when they meet June 19. It is also important to note that using the Federal Funds futures as an indication of what the Fed will do has not always been historically accurate.
At Miles Capital, we still believe that the economy remains relatively strong; however there are clear uncertainties. We will be watching the results of tariff discussions and indications from the Fed meeting June 19. We are also assessing other risks such as worldwide growth deceleration, inflationary pressures, and continued uncertainty around Brexit.