DJI: Dow Jones Pops 0.5% on Rate Cut Optimism. Here’s What Options the Fed Has Now.

Stocks powered higher on renewed hopes of interest rate cuts. But how does the math work out?

• The Dow Jones Industrial Average DJI gained 0.5% to kickstart the week as investors extended their optimism following the softening jobs data from Friday. The Dow’s two peers — the S&P 500 and the Nasdaq Composite —jumped by 1% and 1.2%, respectively. It was the 30-stock index’s fourth straight day of increases. But how realistic is the rate-cut play?
• The Federal Reserve has just about 5 more meetings left by the end of the year. And if they’re to cut borrowing costs three times, as previously communicated, they can only do so either in a still-high inflation environment, with price growth far beyond the Fed’s 2% target. Or during the heated Presidential Election period around November. If they go for the earlier timespan — June through September — they risk derailing the economy.
• And if they go for the later timespan, they risk looking political and leaning in favor of another term for President Joe Biden. And if they don’t cut at all, they risk causing a taper tantrum in markets. With that being said, Fed Chair Jay Powell and his clique of central bankers are caught between a rock and a hard place. Whatever they decide to do could have an adverse knee-jerk reaction.