June looks like 'only possibility' for rate cut: Strategist

With recent comments from Federal Reserve Chair Jerome Powell throwing doubts on the timing of the next interest rate cut, the debate as to when there could be cuts and how many continues across Wall Street. Concerns about whether or not the Fed could even implement another rate hike have also been considered.

Regan Capital CIO Skyler Weinand joins Market Domination to discuss how the economy has been managing during higher-for-longer rates and gives insight into the Fed's path for monetary policy.

Weinland explains why June could very well be the only clear window for the Fed to cut rates: "They have a very, very minute window to cut which is June. That's the only possible time for them to cut. They're not going to cut in July which is in between the Republican and Democrat convention. They're not going to cut in the fall right before the election. So June is the only possibility for them to cut, and the data is telling us that... everything is going great. If anything the economy is running too hot and they might need to raise interest rates."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript

- Investors interest rate worries have continued to weigh on the markets. And while the expectation is for the next move from the Fed to be a rate cut, our first guest today says, well, you don't want to take a rate hike out of your calculations, potentially. Let's welcome in Skyler Weinand Regan Capital CIO. Skyler, thanks so much for being here. There have been a few out there, including the likes of Larry Summers, who have said, maybe, maybe, we should be getting a hike here. Do you think we shouldn't? Do you think that's actually a possibility?

SKYLER WEINAND: Definitely. I think one of the first things Jay Powell did when he got nominated and elected as a Fed Chair is really looked back on the history in terms of what Volcker and what Greenspan and some of his predecessors did. So he's a student of history. He's a pre-GFC guy where he's very concerned about the US consumer, and he's very concerned about inflation not coming down. Inflation is really what is affecting the economy, not the stock market, not real estate. It's folks that earn a W-2 and are spending more money at the gas pump and the grocery store. So if anything--

- But Skyler, the economy is doing just fine. Isn't it by most metrics? That inflation--

SKYLER WEINAND: That's the problem. There's a tremendous amount of wealth that's been created since COVID. $40 trillion in US Wealth has been created since the year 2020. That's housing. That's the stock market. So financial conditions are excellent. It begs the question, why would they even think about cutting rates when inflation is high and unemployment is doing great?

- Skyler, what's your base case there? Is your base case-- they just hold steady this year?

SKYLER WEINAND: Yeah, for sure. They have a very, very minute window to cut, which is June. That's the only possible time for them to cut. They're not going to cut in July, which is in between the Republican and Democrat convention. They're not going to cut in the fall right before the election. So June is the only possibility for them to cut, and the data is telling us that, why? Everything's going great. If anything, the economy is running too hot, and they might need to raise interest rates.

- OK, so if they are not going to cut this year, I mean, stocks until recently, until we saw yields start to rise more considerably, stocks were holding up pretty well. So what happens with yields, what happens with stocks if we don't get any move this year?

SKYLER WEINAND: Right. So we see the front end of the curve T-bills, twos, staying where they're at, 5 and 1/4, 5 and 1/2 on money markets. Twos are right at around 5%. What's going to happen is the back end anywhere from 5 years out to 30 years, or going to continue to increase. So that's going to hurt traditional fixed income. It's going to hurt long-dated munis and bonds. But I think, we're just getting back to normal. We've had an inverted curve for almost two years. Yeah, we might see a bear steepener, which means the back end increases, and that's going to bring stocks down to normality, so to speak.

We were just at almost 10% gain in the first quarter here. Now we're back to about a 6% gain, which is still an annualized 18% to 20% gain. But I think earnings are going to do great. The economy is great. Corporate balance sheets are great. The interest rates aren't really affecting them, and they're not really affecting consumers, the bulk of which are locked into a 3% mortgage. So interest rates and higher rates haven't really had much of an effect on the economy yet, and it might take an extra year or two to see that.