Markets have ‘lost the plot’ on interest rates: Strategist

The release of June Purchasing Managers’ Index (PMI) data shows signs of economic acceleration, with a reading of 54.6 beating economists’ expectations of 53.5. JPMorgan Asset Management Global Market Strategist Jack Manley joins Catalysts to discuss his (^DJI, ^IXIC, ^GSPC) market outlook in light of this data.

Manley expressed frustration with the market’s prevailing “good news is bad news” theme, saying, “I think we’ve completely lost the plot of what interest rates are.” He points out that the Federal Reserve does not want a recession.

“We shouldn’t root against the accelerating economy, that’s a good story,” Manley tells Yahoo Finance.

Regarding the Fed’s approach to rates, Manley notes that the Fed “isn’t always data-driven, they rely heavily on forward guidance.” He criticizes the central bank’s handling of monetary policy in the wake of the pandemic, suggesting that instead of speculating on the Fed’s actions, individuals should “focus on more tangible outcomes.”

“I don’t know what’s going to happen with rates over the next six months. I don’t know what’s going to happen with data over the next six months, but I’m confident that rates will come down over that long-term period.” , he tells Yahoo Finance.

For more expert insights and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video transcript

The latest manufacturing data came out this morning, showing signs of increased momentum in the economy more than what this could mean for future Fed decisions.

In the wider market, we have Jack Manly who said he is JP.

Morgan’s global asset management market strategist.

Jack, thank you so much for coming into the studio with us.

Talk to me about this PM I data that is above expectations.

How much of a driver will that market be?

I think the markets don’t seem to be really excited about the PM I data, but I’m so frustrated Madison with this idea that good news is bad news.

For example, I think the story has been played out so much at this point, and I think the problem is that we’ve completely lost the plot of what interest rates are.

And we have convinced ourselves that the Fed wants a recession.

There is no.

This is not in her mandate.

The Fed doesn’t want to suppress the economy if it doesn’t have to.

We should not root against the economy.

The acceleration of this is a good story.

And as long as the inflation data remains relatively in the right place, coming down to that 2% target at some point.

As long as the job market remains hot enough.

The story continues

I think the Fed will be able to do what it wants to do this year, which is ultimately to lower interest rates.

So I am not paying much attention to the prime minister.

I SI don’t care that they beat.

I don’t think it’s a big story, but that’s where the markets are all focused.

But let’s talk about kind of the trend of your tone on the Federal Reserve right now, because it’s a fascinating point.

And I think that points to this question about the Fed losing the plot and the fact that there’s not a guiding thesis behind Just oh, we’re addicted to the data.

But what does it actually mean?

Yes, II, I wonder if the Fed is actually addicted to data?

Honestly, I mean, I have II.

I don’t think the Fed has done a particularly good job of managing monetary policy throughout the cycle, and I think you have to turn the clock back a little bit to 2022 when they first started doing things, but it blows my mind. that quantitative easing lasted as long as it did.

This rate remained at zero as long as they stayed.

The US economy was completely out of the Covid slump by the fourth quarter of 2020.

Why did we stay so accommodated for so long?

If the Fed were really data driven, these rate hikes would have happened a year ago.

The end of QE would have happened a year ago.

The Fed doesn’t always depend on the data.

They rely a ton on forward guidance, which is why they put out total economic forecasts like the one we got last week.

So I would like, uh, instead of trying to figure out exactly what the Fed is going to do.

I think it’s really, really hard to get inside their heads.

And of course, we don’t know what the data will look like over the next few months.

I’d rather focus on some things that I think are a little more tangible, a little more predictable as investors the Fed is probably not going to hike this year, right, so we can take that off the table.

They seem more likely than not to want to wait at least once.

I don’t know if it would be more than that, but at least once this year, once they start cutting, they won’t immediately stop cutting.

They’re going to keep cutting, and wherever they go down it’s going to be a lot lower than where we are now and a lot higher than zero, which is basically where we’ve been for the last 15 years.

This allows you to set aside much of the short-term uncertainty.

I don’t know what will happen to the rates over the next six months.

I don’t know what’s going to happen with the data over the next six months, but I’m confident that interest rates will move lower over that long-term time frame, and that, I think, gives me a little bit more confidence.

It is in the perspective of stocks or bonds