Fed Set Up to Keep Cutting Rates in 2026, Newedge's Dawson Says

Watch Fed Set Up to Keep Cutting Rates in 2026, Newedge's Dawson Says - Bloomberg on Dailymotion

Transcript

00:00I think you pointed out that we've seen incredible growth in margin, right, from FINRA data, loan balances.

00:09I guess this is what investors, what these DGENs are borrowing to get into this market.

00:14And to be fair, they're winning right now. But does that set us up for a fall?

00:18Look, it's an ultimate party on Garth kind of environment where you have seen a lot of leverage being added into this market.

00:26You see it in FINRA margin loan balances.

00:2740% up 40% in the last six months.

00:31You also see it in leveraged ETF volumes.

00:34The ETF issuance that you've seen are new formations has all been mostly focused this year on big leverage ETFs,

00:40which all says that there is a lot of risk appetite in the retail cohort,

00:44which has been rewarded this year because you have seen such strong markets and you have seen markets led by things like high beta,

00:52non-profitable tech, things like ARK, all of these areas that have a bit more of a speculative bent.

00:57And a lot of that does rely on expectations that the Fed's going to keep on cutting because you need liquidity

01:03and you need loose financial conditions for these things to do well.

01:06Is the Fed going to keep on cutting?

01:07We think that they set themselves up to keep on cutting in 2026.

01:12If you look at their unemployment estimate, holding at 4.4% from 25 to 26, suggests that the bar is pretty low for them to say,

01:21hey, the unemployment market is weakening more than we thought it would, which suggests that they could deliver those cuts.

01:27They also talked about this willingness to look through near-term inflation by calling tariff-related inflation one time.

01:34They're effectively saying we're going to prioritize the labor market versus inflation.