The Federal Reserve (Fed) meets next week, and if you’re holding your breath waiting for a rate cut, you might want to stop before you pass out. Sure, the economy’s looking a little unsure: shoppers are reining in spending, manufacturing is slowing down, and business confidence is slipping. Plus, inflation eased in February, suggesting that the central bank could have room to tinker with rates. But remember the other side. Inflation is expected to stay stubborn, with wage growth – which feeds into higher prices – refusing to budge. After all, both consumers and investors are bracing for inflation to overstay its welcome, which (ironically) makes it even more likely to do so.
Then there’s the tariff wildcard. The US president’s latest trade levies haven’t shown up in the data yet, but when they do, everything from food to clothing could get pricier. That means the recent inflation cooldown could just be a pit stop before prices speed away once again. Unless, of course, the economy falls hard enough to drag inflation down with it.
The Fed’s in a tough spot. Cut too soon, and inflation could come straight back. Wait too long, and the economy might be squeezed too tight. Investors’ expectations of three rate cuts this year seem reasonable – but with so much uncertainty around right now, the jury’s out on when they’ll land. So expect more of the usual “wait and see” messaging from the central bank, which will keep investors glued to every data release.
That could bring around a volatile period for investors. Stocks and bonds are likely to bounce around as fresh data – or political curveballs – roll in. That’s great news for on-the-pulse traders, but for long-term investors, the smart move is probably to stay diversified. And not just across regions, either, but also across asset classes, sectors, and styles. And as always, avoid knee-jerk reactions to short-term fluctuations.
