Brendan McDermid/Reuters
- Fundstrat's Tom Lee thinks a March cut is even more likely after "surprise" Fed comments.
- Powell's cautious tone sent stocks into the red on Wednesday, after he announced a March rate cut was unlikely.
- "We perceive such remarks as the Fed trying to herd the 'hawks.'"
On Wednesday, the Fed said it's unlikely to cut rates in March. Now, one Wall Street bull is even more certain they will.
"We see higher probabilities for March cut than consensus," Fundstrat's Tom Lee wrote in a note on Thursday.
Jerome Powell's comments at the January FOMC meeting were markedly more hawkish than investors were expecting. Stocks slipped into the red, with the S&P 500 seeing its worst day of the year. Bank of America said Powell's remarks were a "surprise" to investors who have been pining for an early Fed pivot.
But Lee isn't swayed by the Fedspeak.
"We perceive such remarks as the Fed trying to herd the 'hawks,'" Lee wrote.
So far, the doves have been gaining ground. Odds of a March rate cut have been rising, with the CME FedWatch Tool currently recording a 59% chance the Fed will cut rates by 500-525 basis points in March. That's up from 46% a day ago, despite Powell's cautious tone.
Lee explained that something else Powell said in his speech — besides noting it was unlikely the committee would be ready to cut in March — is worth paying closer attention to.
In his presser on Wednesday, the Fed chair said, "We feel like inflation is coming down […] what we are trying to do is identify a place where we are really confident about inflation getting back to 2%, so that we can then begin the process of dialing back the restrictive level."
According to Lee, that's a good reason to stay bullish.
"To us this means that the Fed is getting ready to cut, and this is a good thing," he said. "But Wednesday's FOMC statement also tells us that the Fed and markets will continue to struggle with what that framework is."
Lee, one of the strategists with the most accurate stock market call in 2023, has also said the market could blow past his 2024 S&P 500 target this year after a strong January.