- The Fed is going to hold out on rate cuts longer than we think, a John Hancock strategist said.
- Consumer spending and market momentum are strong, while elevated rates haven't created meaningful cracks in the economy.
- "We're seeing riskier areas like crypto-related stocks and AI darlings' momentum taking hold in the market."
There are two forces playing tug-of-war with the US economy right now.
On one side, there's the elevated interest rates that have made borrowing money a lot more expensive. On the other side is momentum — the hype that's been pushing up the stock market and the cash that keeps flowing out of consumers' wallets.
Right now momentum is winning, which means rates will remain right where they are for a while longer.
"It looks to us like the Fed's going to have to remain on hold longer than any of us expected," John Hancock's Emily Roland said in a CNBC interview on Thursday.
A Fed that loosens monetary policy when the economy is already running hot may risk heating things up even more. Jerome Powell will cut rates when something begins breaking, but everything is holding up pretty well so far, Roland said.
"We're seeing this mixed picture where we're having his Fed tightening really not create some meaningful cracks in the economy yet, or the labor market," she said. "One of the reasons for that is that we're continuing to spend."
Last month's consumer spending data showed Americans capped off the year by splurging another $133.9 billion. Those "YOLO spenders" are fueling growth and driving the strength of the US economy. And the flurry of cash is also being fed into the stock market.
"In fact, we're seeing momentum pervading across the market," Roland said. "We're seeing riskier areas like crypto-related stocks and AI darlings' momentum taking hold in the market."
Bitcoin's price has punched past $51,000 to levels last seen in 2021, rallying regardless of hiccups in the stock market like Tuesday's pullback after a hot CPI report. It's the same with tech stocks like Nvidia, up 53% this year alone as part of a breathless ascent across the sector.
The Fed has already signaled that a March rate cut is likely off the table. And the odds that the Fed maintains its pause in May are also climbing higher, rising from 40% last week to 59% today, according to the CME FedWatch Tool.
