Morgan Stanley’s chief investment officer says weak jobs data could force the Federal Reserve into a more aggressive rate-cutting phase, giving the stock market another boost.
In a new interview on CNBC, Mike Wilson says that once the Fed examines the revisions to employment numbers in recent months, the central bank will cut rates despite the already hot stock market.
“They’re going to realize that the numbers themselves are way behind. I’m not blaming the Fed, this is hard. I mean, it’s hard. In real time, the numbers weren’t weak enough to warrant further cuts, but when they actually look at the revisions now, and that’s what we’re doing…
It’s very clear that we’ve had a significant labor cycle… and we’ve come out of that, which is very good. And by the way, the best confirmation of this is that earnings growth is now actually growing almost 10% again for the average company in the S&P. That’s the best growth we’ve seen in four years. There is evidence.”
Wilson says the Fed will likely cut rates to provide relief for the working class and certain struggling sectors, but at the risk of creating an “asset bubble” – which Morgan Stanley currently expects, the trader said.
“I think what they will notice is that if you want to recover in the private economy – which we all do, we don’t want to just have a split economy – they will realize that we need interest rate cuts for the financial part of the economy, whether it’s housing, consumer goods or the lower end consumer. We need that.
The risk of this strategy that the Fed needs to consider is, “do we have an asset bubble?” If we cut that profit cycle, will we have an inflated stock market? Our opinion is yes.”
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