Following the Federal Reserve’s recent decision to keep rates unchanged and the suggestion of future rate cuts later in the year, there’s been a prevailing sense of optimism among many investors, with reassurances that these anticipated rate cuts will materialize eventually. However, Vanguard is offering a different view point as they are suggesting that the Fed might not lower rates at all in 2024.

While some people at the Fed think the economy needs a boost from rate cuts, Vanguard sees things a bit differently. They believe that the growth we are seeing from businesses making and selling things might be strong enough on its own, without needing help from rate cuts. In simple terms, it is kind of like saying, “maybe the economy is not as weak as we think”.
Another reason why Vanguard is cautious about rate cuts is because they are worried that stock prices are getting too high. With everyone expecting rate cuts, investors are driving stock prices up, however, Vanguard thinks this could be a problem because it might make stocks cost more than they are really worth.

Vanguard’s stance may surprise many given the prevailing optimism among investors, however, they arere not alone in this view as other experts, such as those from Sycamore Tree Capital Partners, also think there is a chance the Fed will not carry out the three cuts it hinted at their last meeting.

It is worth remarking that the impact of rate cuts, or the lack thereof, can vary across all types of investments. Therefore, while expectations for rate cuts remain high, Vanguard’s remarks serve as a sobering reminder not to become overly confident and to have a contingency plan in place for the possibility of an alternative scenario unfolding.