Perhaps the last thing impatient investors want to hear  was the US Federal Reserve Bank of Minneapolis President Neel Kashkari saying that interest-rate cuts may not be needed this year if progress on lowering inflation stalls—especially if the economy remains robust. The stock market sold off on Thursday following his comments. The benchmark S&P 500 posted its worst weekly performance of the year on Friday and only its fourth overall negative week of 2024. The decline was primarily driven by strong economic data on the labor market, which increased bets that the Federal Reserve would be in no hurry to cut interest rates. 

The jobs data released Friday showed nonfarm payrolls rose 303,000 in March, well above expectations and the most in almost a year. “It’s much too soon to think about cutting interest rates,” Federal Reserve Bank of Dallas President Lorie Logan said after the report. If anyone is worried about a bubble on Wall Street, it was hard to tell on Friday as a blowout US jobs report convinced investors of America’s continuing resilience.

What awaits the stock market in the next few months?

Future Weath’s View

In Aug 2022, as the market was gaining momentum, the same Neel Kashkari derailed the stock market by stating “There is a disconnect between me and the markets”. In our report on Aug 21, 2022, we had stated that “The bluntness of remarks by members of the Fed these days has harkened us back to the days of the Greenspan led Fed where comments by members of the Fed were so esoteric and required some hard analysis and between the lines reading by traders and investors alike on Wall Street.” The link of that report is here –

As in most things in life, the cry wolf story grows old very quickly. The stock market shrugged off Neel Kashkari’s comments and rallied on Friday on the back of strong unemployment numbers. The message is that even if the Fed wants to wait longer to cut interest rates, the economy is humming along, which means that US companies are doing well, consequently improving earnings and in turn, improving the P/E multiple that ultimately, drives higher stock prices.

Friday’s stock market action is significant to the extent that the Fed is no longer driving the stock market. It will be true, until, another loose mouthed Fed member throws the market into disarray next week.