A dove may be coming

Everything is good… for now. However Federal Reserve Chair Jerome Powell seemed to acknowledge the potential for a rate cut in September. During testimony on Capitol Hill, Powell notably pointed out, “"in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face.” Powell’s words reflect the Federal Reserve’s dual mandate: “…to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Basically, the Fed can’t only focus on inflation, but must take into account employment numbers as well. June employment numbers indicate unemployment has ticked above 4% now, which is a 2.5 year high.

So what’s next? Economist and Wall Street are now increasingly eyeing a September rate cut. A September cut should make it easier for companies to borrow money and thus hire more workers. However, the increasing potential of a rate cut begs additional questions. First, how large of a rate cut? A 25 basis point rate cut (the smallest rate cut the Fed usually performs) would then present the question of question of when is the next rate cut. A larger rate cut would spark questions if there are any additional rate cuts coming.

These questions come with many other economic factors still up in the air. First, we need to talk about inflation which has ticked down considerably as the Fed’s preferred inflation gauge, PCE, sitting at 2.6% in May 2024. A rate cut’s impact on inflation would be questionable, but the dramatic decrease over the past year should give the Fed some room to maneuver… at least a little. The second question is the election—not just for president, but Congress as well. The scenarios are many. Will there be a Republican trifecta? A Democratic trifecta? A divided Congress? Or a unified Congress with a opposite party Commander-in-Chief? Even more unknown is how any one of these scenarios will impact the market and the economy as a whole. A final note, there is always a question of a rate cut before the election being more favorable to the sitting president. With less than two months between a rate cut and the election and the fact that monetary policy runs with roughly a year of lag, it is unlikely any cut will meaningfully impact the election.

This week’s quiz

Question 1

Question 2

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Answers

Question 1

Answer: C

The IRS Gift Tax Limit for 2024 is the maximum amount of money or property value that an individual can give to another person in a single year without incurring a federal gift tax. For 2024, this limit, also known as the annual gift tax exclusion, allows individuals to gift up to $18,000 ($36,000 filing jointly) to as many recipients as they wish without triggering the need to file a gift tax return or pay gift taxes. Any gifts exceeding this amount to a single recipient in a year may count against the donor's lifetime gift and estate tax exemption.

Question 2

Answer: A

Mutual funds can only be traded at the end of the trading day. When an investor decides to buy or sell shares of a mutual fund, the transaction is processed based on the fund’s net asset value (NAV), which is calculated at the close of the trading day.

ETFs can be traded throughout the trading day on stock exchanges, just like individual stocks. Investors can buy and sell ETF shares at any time during market hours (9:30 AM to 4 PM EST in the U.S.).