Will Nvidia Trump The Fed?

Yesterday's FOMC minutes confirmed that Fed officials are in no rush to lower the federal funds rate (FFR) and some are considering the possibility that they might have to raise it if inflation stalls above the Fed's 2.0% target. The 2-year Treasury yield is back up to 4.94% implying one 25bps rate cut over the next 12 months. So stocks sold off on fears of "even-higher-for-even longer" interest rates. We still don't expect any FFR increases or decreases in our "normal-for-longer" outlook for interest rates over the rest of this year through at least the first half of next year.

Today's initial unemployment insurance claims report (215,000 during the May 17 week) confirms that the labor market remains strong. In the past, the Fed usually lowered the FFR when the weekly insured unemployment rate moved higher (chart). It has been flat at 1.2% since the week of March 14.