Finimize - 💔 No rate cut yet

What’s going on here?

The Federal Reserve (the Fed) suggested on Wednesday that there’ll only be one interest rate cut this year, despite a softer-than-expected inflation report coming out earlier the same day.

What does this mean?

May’s inflation came in calmer than expected. Prices stayed flat from the month before for the first time in nearly two years, bringing the annual inflation rate down to 3.3%. Plus, core inflation – which removes volatile food and energy prices – picked up by the smallest amount since August 2021. But despite those figures suggesting that inflation’s heading toward the Fed's 2% target once again, the central bank kept rates at their two-decade high of between 5.25% to 5.5%, as well as signaling just a single rate cut this year.

Why should I care?

For markets: Wake me up when September starts.

That prediction isn’t unanimous, though. Seven Fed policymakers expect one cut this year, eight say two, and four a flat zero. Traders are still betting on two cuts, with about a 60% chance for the first starting as soon as September. In reality, it’ll all hinge on the next batches of data tracking economic growth and inflation. Just remember, data and investor sentiment are far from set in stone: just a few days ago, strong job numbers pushed back rate cut expectations.

The bigger picture: Just right.

The S&P 500 topped $5,400 for the first time on Wednesday. That’s because the US is hitting a “Goldilocks” phase, with the economy still looking robust while inflation seems to be heading south. That’s an ideal environment for stocks: the economy’s strong enough to spur on companies but weak enough to push the Fed toward rate cuts, which would reduce borrowing costs and increase stock values. That said, it could all change on a dime. On one hand, a hardy economy could keep inflation simmering. On the other, a drop in inflation could signal a faltering economy.

What’s going on here?

The World Bank lifted its 2024 global growth outlook to 2.6%, up 0.2 percentage points from January, shouldered by a stronger-than-expected performance from the US.

What does this mean?

Although the global economy isn’t expected to pick up to pre-pandemic levels until after 2026, the US is doing some serious heavy lifting. The World Bank is now expecting the US economy to grow by 2.5% this year, up from January's 1.6% estimate and matching last year’s pace. That accounts for a hefty 80% of the uptick in its global predictions. But it’s not good news for everyone: countries in Sub-Saharan Africa, the Middle East, and North Africa had their estimates slashed. The bank also predicts that global interest rates will stay at double their 2000 to 2019 average for the next three years, which will drag on economies and pile on the pressure for emerging markets that borrow in US dollars.

Why should I care?

Zooming out: Heavyweight champion of the world.

The jury’s out on whether US stocks will continue to outperform as they have over the last decade. If the World Bank is right about the country's economy, then there’s no good reason to ditch your US stocks just yet. But if not, diversifying beyond developed markets could be a savvy move – you might even bag some up-and-coming investments before the rest of the world clocks on.

The bigger picture: Sticking to their guns.

Egypt, Pakistan, Nigeria, and Kenya have been embarking on aggressive policy shifts to try and repair their economies after years of currency crises. And they’re racking up a ton of debt, taken out in local currencies, as they go. So now, adventurous investors are seizing the opportunity to make double-digit returns by investing in that riskier debt, filled with newfound optimism that the countries – freshly bolstered with international aid – will manage to avoid default.