"Time Has Come Today": The Fed's New Anthem?

August 26, 2024

In the words of the Chambers Brothers' classic, the “Time Has Come Today”.

If you do not recognize the song in the link above, you’ve likely heard it sampled in television, commercials, and movies such as Remember the Titans. For history buffs and those old enough to remember, the song became synonymous with a call-to-action during the Vietnam War and Civil Rights movement in the late 1960’s. Through this call-to-action lens, let’s digest the recent comments from Federal Reserve Chairman Jerome Powell on Friday at the Jackson Hole Economic Symposium.

“Time has come today.”

In his address, Chairman Powell stated “The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate. The time has come for policy to adjust.” Cue the drums. This is the most direct statement from Chairman Powell recently regarding a change in monetary policy. At the last Federal Open Markets Committee (FOMC) meeting in July, Chairman Powell was met with a litany of questions asking if rate cuts were discussed or on the table for September. After all, inflation fell considerably from its peak and we were starting to see softening unemployment data. However, Powell deferred and said they would wait to cut rates until the data supported it.

“Young hearts can go their way.”

Just two days after the July 31st FOMC meeting concluded, markets decided to go their way. Fresh labor data caught everyone off guard. Unemployment jumped to 4.3% versus the 4.1% expected. While not high by historical standards, this fourth straight month of unemployment increases sent markets into a frenzy. The S&P 500 fell -5% over the next several days and logged its first daily drop of -2% or more in 356 trading days. The market volatility index, VIX, spiked to 65, the third-highest level on record.

“Can’t put it off another day.”

By the following week, many pundits went on record saying the Fed should have cut rates in July, with some calling for emergency interest rate cuts in response to the unemployment data and market sell-off.  While not common, inter-meeting cuts have occurred in times of crisis such as the global financial and pandemic related episodes of 2008 and 2020 respectively.

“I don’t care what others say.”

Despite calls for emergency rate cuts, the Fed held steady. In the following weeks, the VIX normalized and markets rallied to approach all-time highs last seen in mid-July. The scene is set for the Fed to cut interest rates, as it attempts to navigate a soft landing for the U.S. economy.

“Time has come today.”

Time has come to review your cash and equivalent positions in preparation for looming interest rate cuts. At present, markets are expecting a 0.25% interest rate cut in September with the possibility of 0.5%. Futures trading suggests interest rates could fall below 4% in the first quarter of 2025. This will have a direct impact on those cash and equivalent positions. To discuss your cash needs and make the most of your savings, please reach out to your financial advisor .