According to a Reuters poll, most economists expect the Federal Reserve to wait one quarter before it resumes cutting interest rates. The central bank wants to wait for clarifications on tariff policies. That will have an asymmetrical impact on future inflation rates.
The Fed may afford to wait. The job market is strong after the economy added 143,000 jobs in January. Unemployment is at 4.0%, the lowest level since last May 2024. Jobs grew in the healthcare sector, social assistance, and government. Still, markets are bracing for steep job cuts in the public sector.
The government will need to manage defense spending with fewer staff. Military stocks like Northrop Grumman (NOC) and Lockheed Martin (LMT) are on a downtrend. Conversely, RTX (RTX) bounced back from the $115 level set last month to close at $128.25.
One Rate Cut
Investors should expect the Fed to cut rates by 25 bps by mid-year. Still, the poll median is forecasting two cuts this year. That would bring the Fed Funds rate to the 3.75% to 4.00% range by the end of this year.
Banks would benefit from lower rates. JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) all trade near their highs for the year. Lower rates increase economic activity, boosting bank profits.
