All eyes on Jay Powell ahead of his high stakes Jackson Hole, Wyoming speech as he faces pressure from Trump and growing dissent within the Fed Reserve.
Well, Trump's nominee Stephen Moran backs rate cuts and wants more presidential control over the Fed.
And if confirmed, Iran could join two existing dissenters, marking the biggest system at the Fed since 1988.
Well mixed economic data and Trump's tariffs are further complicating Powell's path.
This afternoon we get Fed minutes from the July meeting at 2:00 p.m.
Eastern.
Well joining me this morning is Ed Sedel, president and CEO of EGSI Financial.
Ed, good morning.
Thank you so much for joining me.
So, of course, we're awaiting Powell's speech at the end of this week and the Fed minutes, but how realistic is the market's current expectation of a 100 basis point Fed rate cut this year?
And what are the potential risks if the central bank only delivers, say, 50 basis points?
Well, honestly, we believe that 100 basis points, that is going to be a little ambitious, uh, by the end of this year, we, we think it's going to be more realistic of a 50 basis point cut.
I think the market is already priced in the 50 basis points.
I don't believe we don't believe when we're looking at the data that the market is really looking at the 100 basis points, although we also think that when Powell's speech comes out today, it's going to be negative as usual.
And so the market is going to react accordingly.
We do believe that we're going to see a little bit of a pullback.
We we're actually anticipating that.
We like that.
Uh, for us and for our clients because that creates a really good buying opportunity on, on different sectors and different stocks.
Are you Yeah, and Ed, when we take a step back and look at the latest economic data, we got those no farm payrolls for July, and we also saw those downward revisions for the previous month, and we also got PPI and CPI last week.
So do you think the Fed is placing too much weight on employment figures while overlooking, say, disinflationary forces such as falling energy prices?
And what do you think are the implications of this for monetary policy?
Well, we believe that the PPI numbers, the jobs numbers, they're, they're skewed, and, and they've continued to revise them downwards, you know, over the last several years, and, and so the Fed's continuing to look at PCE, that, that, that's the main number that they look at, and that's one of the numbers that we look at as well.
One of the things that the Fed is not taking into consideration, it's the, the, the cost of energy.
We are an energy society globally as well as in the US.
We're a.
Based economy and the cost of oil has consistently been under $70 a barrel and here recently under $65 a barrel.
So by definition that's disinflationary.
So when you look at the bigger picture, you know, inflation is way lower than I think what people are looking at.
And even though tariffs seem to confuse, it seems like the feds and Powell, and they're still holding their breath to figure out the impact that that has on inflation, really what we're seeing is very little impact because it's creating additional revenues as, as well as negotiations for more buying power here into the US economy.
Yeah, and Ed, we don't have a crystal ball, but if Powell's upcoming speech on Friday triggers a negative market reaction, how should investors interpret that in light of your broader bullish outlook?
For us it's a cooler heads prevail.
You know, it's not a time to panic.
You know, we still believe by the end of the year, the S&P, the markets are going to be higher than where they're at right now.
And going forward, we still believe, looking at all the data, energy costs, deregulation going forward as well.
This investment in the US, we are at the beginning of a very, very bull market, big bull market going forward.
This is just the beginning.
So we're really excited and again, we're advising our clients just to hold fast and the cash that we have sitting on the sidelines, which is very minimal, to be honest with you.
If we do see a pullback, we're going to reinvest even more.
Yeah, and I understand that you mentioned that tariff revenue will offset costs at a macro level.
So what does this mean when it comes to sectors or industries that stand to benefit most from this dynamic in the near term?
Well, first, really what we have to look at is the technology sector because right now Trump, the current administration, the US government is looking at investing into Intel at least 10%.
You've got other companies, Apple, that, that is reinvesting billions of dollars all the way across the board, Nvidia, all of these companies investing trillions of dollars into the US, and it's all going to be in the tech sector.
So for us, not only AI and tech in general, but also we have to look at financials because as deregulation continues to occur and unwind all the regulation going forward, we see financials.
These are some really good buys right now going forward.
So those are the two big sectors that we're looking at.
And as a whole we really, really like small caps.
You know, if you look at from April 8th, the big downturn of the tariffs to now, you know, the Russell 2000 is up almost as much as the S&P, and we think that that's going to continue to get much higher over the next couple of years.
Yeah, and finally, Ed, before I let you go, we're currently counting down to the market open here.
You mentioned that $1 trillion in capital still sitting on the sidelines.
So what will this actually look like, not just in the near term, but also as we head into 2026?
What we're seeing right now is a lot of people are comparing the market being overbought almost to the tech bubble, but it's completely different because during the tech bubble people were buying IPOs and these companies had zero revenue.
What we're seeing with earnings is that a lot of these companies are meeting and exceeding and extremely beating expectations all the way across the board.
So when Look at the balance sheets, these companies are very stable, and as we see more cash coming in into the market, we're going to see the growth of these companies get higher and higher and the value of stocks and people's accounts get higher and higher.
So again, we believe we're just at the precipice of a of a huge bull market and so we're we're really excited to see what's going to happen over the next couple of years.
OK, Ed, well, we will have to leave it there, but thank you so much for joining me and as always, thank you so much for your insights and perspective.
Absolutely.
