Several key economic prints, like July’s Consumer Price Index (CPI) and retail sales report, are due out this week as investors eye the Federal Reserve’s first interest rate cut. Kace Capital Advisors managing partner Kenny Polcari joins Morning Brief to discuss the state of the market and how these economic data points will play into the Fed’s decision to cut rates.
After last week’s intense market volatility, some investors started pricing in a 50-basis-point cut from the Fed at its September policy meeting. However, Polcari believes a 25-basis-point cut is more likely. As more economic data comes out this week, he expects some market volatility to continue, encouraging investors to practice patience:
“Investors need to understand the data that’s coming. They also need to understand August is kind of a funny month, right? There’s a lot of people on vacation, so there’s a lot less volumes. And so moves can be exaggerated in either direction based on the data that comes out. So don’t put too much thought into it as you have to kind of watch as the market reacts to the data without getting too impatient.”
He notes that the market is “very sensitive” to economic data and warns that if July’s CPI print comes in above expectations, there may be an overreaction as investors demand a rate cut from the Fed. He believes a 50-basis-point cut would be a “mistake” as it would signal that the Fed is “behind the eight ball, and now they’re trying to play catch up because they see something more negative on the horizon.”
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