Soooooo, I may have been a bit optimistic about that jobs report. In case you did not see it, the report was hot, meaning The Fed will most likely not cut rates until after September. Currently, there is a 56% chance of The Fed cutting rates in September, but that is not going to happen. We’re going to review what was in the jobs report, where interest rates are going to go and when, and what this extended break from lowered interest rates means for you.

     First, the economy added 272,000 jobs in May, up 107,000 jobs from April’s total. That was wayyyy too many jobs. Obviously, in the short term, having more jobs is great. More people are employed, more money is going around, etc. But if more people are employed, that means more money will be spent. If more money is spent, inflation increases. The economy needs to be slow before The Fed can justify cutting rates and making it easier to borrow and lend money, so a jobs report this good, means The Fed will not cut rates for a minute.

     The Fed will meet in three days, in July, September, November, and December. Realistically, if I had to make a bet, I would say The Fed won’t cut rates this year. It will take multiple bad months of jobs data and multiple months of inflation decreasing before The Fed cut rates. This report was strong, and I would guess some of this momentum carries for June as well. Best case scenario for cutting rates, June, July, September, August, and October are all bad months for jobs, and maybe The Fed cuts at their meeting in November, but there will be one or two months from now until the end of the year that is strong and shows a strong economy, and The Fed likely will not cut rates before the highest spending part of the year, the mid-November to late December period. Maybe going in December, they would cut, but so much money moves around during the holidays. People buy and borrow during the holidays, from minor presents to larger purchases like houses and cars, so The Fed likely will not cut then either. The most realistic scenario is that we are looking at an early 2025 rate cut. Although The Fed’s meeting is on the 17th of December, most of the spending will have already been completed. I give The Fed a 30% chance of cutting in December, but most likely, it will be in early 2025.

     What does this mean for your portfolio? Whenever rates are lowered, the economy is supercharged, and it is easier for the government to borrow and hide its debt because they are spending less. People and the government can spend and borrow much cheaper and with less potential for monetary consequences. For your portfolio, unless you are in a bunch of super risky, ultra-micro-cap startups, a 2-3% rate compared to a 5% rate, doesn’t really matter. Over the long run, sure, interest rates matter for your companies. But for almost all companies in the S&P 500 (unless you are a REIT), rates do not play a massive factor in the value of your position as a shareholder. I prefer higher-rate environments. Higher rates mean that companies like Peloton are weeded out. When rates are lower there are more weak companies propped up, which can be pretty annoying to invest through.

     And if you are wondering why people on TV and in financial news outlets are always talking about rates, it’s because they matter a lot for some people (REITs for example) and because they desperately need something to talk about. CNBC is on all day, and frankly, they run out of stuff to talk about pretty quickly. Something like interest rates is just a tool for their lazy TV.