This week, those tired of high borrowing costs in America will face disappointment.
The American economy added 272,000 jobs in May, surpassing economists' expectations of 180,000, while the unemployment rate climbed marginally to 4%.
This robust jobs report is a double-edged sword for Wall Street. On the plus side, a strong labor market reduces the likelihood of the economy sliding into a recession. However, it also puts the much-anticipated rate cuts from the Federal Reserve on hold. Wall Street predicts the Fed will decrease rates once or twice this year, with September being the likely time, according to the CME FedWatch Tool.
The Fed is slated to maintain its rates at the upcoming policy meeting, as inflation remains above its 2% target and the economy cools slowly. We're anticipating the release of the latest Summary of Economic Projections, which entails the 'dot plot' – a chart showcasing Fed officials' projections for where rates could go in the future.
The Before the Bell newsletter caught up with Nate Thooft, the chief investment officer of multi-asset solutions at Manulife Investment Management, to discuss his expectations for when the Federal Reserve will begin cutting rates and the impact this has on markets.
This interview has been edited for brevity and clarity.
Before the Bell: Do you think the Fed could adjust its projection for three quarter-point rate cuts this year?
It's highly probable.
The Fed's dot plot is still indicating three, so there's a reasonable chance the dot plot will adjust to two as the probable outcome. However, we're in the camp that it'll be two or three. I'm not certain it matters that much in the long run, since the main point is that the US will join other major global central banks in initiating a cutting cycle before the end of the year, with one to three cuts.
Is it worrying that other central banks, like the European Central Bank and Bank of Canada, have started cutting rates before the Fed?
It's concerning because higher interest rates tend to strengthen a currency. These central banks could move several quarter-points beyond the Fed, but they can't let their currencies weaken significantly while the Fed remains constrictive. Thus, the Fed will follow suit, possibly beginning a cutting cycle by the end of this year with one to three cuts, then continuing in 2025.
Is it a worry that questions about whether the Fed will cut rates later this year could exacerbate stock market volatility closer to the election?
You might observe some increased volatility in the US around the election. But overall, our belief has long been that the US electorate is evenly split, so major policy changes are unlikely within the next four years. This has typically been beneficial for US markets, with elections usually resulting in temporary price fluctuations rather than significant shifts.
Workers at Samsung Electronics Walk Out for the First Time Ever
Samsung Electronics, the global smartphone and chipmaking leader, experienced its first labor strike on Friday, according to Yoonjung Seo and Diksha Madhok from Before the Bell.
The Nationwide Samsung Electronics Union (NSEU), which comprises over 28,000 employees (approximately 25% of Samsung's total workforce in South Korea), said its members would go on a one-day strike on June 7 after failed negotiations regarding pay and bonuses. The union asked its members to take the day off between the public holiday on Thursday and the weekend.
Son Woomok, a union leader, confirmed to CNN that "many employees used their annual leave today," while at one site, "all workers had taken leave and replacement personnel were deployed." He didn't provide further details.
Son had previously mentioned that many NSEU members work for Samsung's flagship semiconductor unit, which is attempting to regain its previous status as a leading semiconductor company. According to Reuters, Samsung has fallen behind competitors SK Hynix and Micron Technology in producing chips for AI processors.
A Samsung spokesperson stated, "there is no impact on our production and management activities as a result of the one-day strike."
### Depression-Era Law Could Be Used to Reduce Alcohol Prices
Authorities are contemplating using a seldom-employed law from the Great Depression to accuse the largest alcohol distributor in the United States of charging unfair prices for wine and spirits, a person privy to the matter informed CNN.
A potential Federal Trade Commission (FTC) lawsuit against Southern Glazer's Wine and Spirits aims to reduce expenses for consumers by making alcohol more affordable and leveling the playing field for small stores against major chains, according to the source.
This initiative, which could be hazardous, is part of the Biden administration's efforts to demonstrate their dedication to reducing costs and countering dominant businesses. It also reflects the latest determined moves by FTC Chair Lina Khan, who recently led the agency to prohibit most employers from imposing non-compete clauses and is scrutinizing a Microsoft deal with an artificial intelligence startup.
The current disputed territory in the antitrust struggle involves alcohol. Miami-based Southern Glazer's, which operates in 44 US states and supplies brands like Grey Goose vodka, Jim Beam bourbon, and Yellow Tail wine, is America's biggest wine and spirits distributor.
The FTC lawsuit, previously revealed by Politico, is expected to be announced in the next few weeks and will allegedly utilize the Robinson-Patman Act of 1936. This Depression-era law forbids suppliers from offering deeper price cuts to large retailers compared to small businesses.
Read more here.
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In light of the robust jobs report and the Federal Reserve's decision to maintain interest rates, some investors might be reconsidering their business strategies related to investing.
Given the anticipation of potential rate cuts later this year, there might be opportunities for businesses to secure funding at lower interest rates, thereby improving their investment prospects.
