Fed's High-Stakes Rate Call: Silicon Valley's Rally Catalyst?
The Federal Reserve's highly-anticipated rate decision this Wednesday could end up being a massive bull or bear catalyst for the tech sector and emerging AI stocks.
At stake is whether the Fed delivers a relatively hawkish 25 basis point "baby step" cut to keep inflation in check, or a more forceful 50+ basis point dovish strike to get ahead of deteriorating economic conditions. With futures pricing a 61% chance of that larger dovish hike, Chairman Powell finds himself in a true "Goldilocks" scenario.
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Go too hawkish and risk overtightening financial conditions versus overwhelmingly dovish market repricing. That could catalyze a violent tech selloff as soaring interest rates crunch valuations for unprofitable AI and growth names.
But a too-dovish 50+ basis point blast also brings major risks. It would mark a sharp pivot from prior Fed guidance that terminal rates could reach 5.1% or higher. Such an about-face could upend market psychology and spark excessive volatility just ahead of the midterm elections.
Most economists expect the Fed to thread the needle and stick to a 25 basis point script (84% in the latest CNBC survey). This could foster a fabled "soft landing" by keeping inflation in check without extinguishing the economic expansion.
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However, many experts warn the smaller 25 basis point pace underestimates deteriorating data. They argue a minimum 50 basis point cut is required to get ahead of rapidly-cooling conditions and avoid putting the recovery at risk.
For tech investors, the stakes are astronomically high. A 25 basis point "Goldilocks" outcome could catalyze a massive relief rally in beaten-down AI and unprofitable tech names by keeping financial conditions supportive without overcooking inflation.
But any policy overcorrection in either hawkish or dovish directions risks detonating the Nasdaq's 2024 uptrend. Too-hawkish hikes will crush demand and crunch valuations, while excessive dovishness brings volatility headwinds.
Circle Sept. 18 on your calendar. The Fed's decision could end up being Silicon Valley's biggest bull or bear catalyst of 2024. Will Powell thread the needle and keep the tech rally alive? Or will his call prove too hot or too cold, putting the brakes on AI and growth stocks? The next big move could be determined by Wednesday's Goldilocks verdict.
YOU NEED TO WATCH THIS BEFORE TOMORROW
Former hedge fund manager: "Move your money before the Fed's next meeting"
In 2022, the Federal Reserve raised interest rates and triggered a stock market event that slashed the average investor's portfolio nearly in half.
Now, according to the man whom CNBC calls 'The Prophet', the Fed could soon trigger another dramatic stock event – one investors have seen just 13 times since 1920. He warns: "This event will likely dictate the next decade of every American's financial life, and it's critical for you to take steps now to prepare."
