INTEREST RATES

America Has Grappled With Higher Interest Rates For Two Years. How Long Until They Go Away?

Analysts were wrong about the recession — so it’s only fitting they were wrong about interest rates, too. In late 2023, analysts drummed up a rate cut bonanza, with as many as six cuts expected in 2024. However, halfway into the year, we’ve yet to see one. The latest Fed “Dot Plot” suggests we might have to wait a little bit longer before returning to business as usual.

The New Plot: Recent moves by the central banks of Canada and the EU indicate the beginning of the end for high interest rates. Meanwhile, in the US, the Fed held rates at 5.25%-5.50% during last week’s Federal Open Market Committee (FOMC) meeting. However, if the latest inflation report is any indication, the Fed is now anticipating just one cut by year-end, with further reductions accelerating after the first.

• Between now and 2026, increasingly dovish Fed members foresee rates at 4.125% for 2025, 3.125% for 2026, and a long-term rate of 2.750%.

• Yet, the timing of these cuts could shift based on inflation, employment trends, and job reports, as evidenced by Fed members’ expectations dramatically diverging after 2024.

Running with Scissors

The Fed’s forecasted rate cuts are expected to provide relief to Americans who have been sidelined from buying homes or vehicles, potentially spurring spending and economic growth. This could further bolster the already low-volatility, record-breaking stock market to new heights. However, lower rates will be bad for cash-rich savers — and, as it turns out, there are a lot of them.

• Currently, US money-market funds (MMFs) and corporate cash deposits have hit record highs of $6.12T and $4.11T, respectively.

• When the Fed begins to cut, yields on bank accounts, MMFs, and other savings products will likely decline — prompting higher spending or investment.

Exit this way: Federated Hermes’ analyst Deborah Cunningham says that the wall of cash in MMFs and corporate holdings will eventually exit into riskier products such as stocks. Investors could get ahead of the boom by buying index funds like the S&P 500, but risk-averse Americans who have cozied up to high rates might consider alternatives such as bond ladders or annuities before the cuts begin. While these options may not match the potential returns of the S&P 500, they offer greater safety and predictability, with potential returns ranging from 4-6% over several years.

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LARGECAP RECAP

🍟 McDonald’s To End Successful AI Drive-Thru Pilot With IBM, Seeks New Partners

Would you like your large fries with a side of AI? McDonald’s ($MCD) has been trying to find out for the last few months. The fast-food titan partnered with IBM ($IBM) to test artificial intelligence order-taking at 100 US locations. Despite the success, the company is undoing the effort — and looking for a new partner.

• McDonald’s management told analysts, “A voice-ordering solution for drive-thru will be part of our restaurants’ future” as they plan to wind down the current AI by Jul. 26.

• Given their past collaborations, McDonald’s may consider expanding its partnership with Google ($GOOG) or exploring other options like SoundHound ($SOUN), which has built similar products for competing chains.

Race to replace: Labor costs have soared in the fast-food industry, exasperated by California’s new minimum wage law setting a $20 per hour minimum for fast-food workers. This has driven companies to look for ways to automate simpler tasks. Ordering is one of these tasks, with competitors like Wendy’s ($WEN) and White Castle also embracing AI — but in some cases, the “robot” taking your order might just be outsourced workers.

A truly golden opportunity: Gold prices are soaring higher than ever — the precious metal reached an all-time peak in May and the Bank of America is predicting a leap up to $3K by 2025. There are serious benefits to adding gold to your portfolio, especially with it being a steady hedge against inflation. Learn how to make the most of this reliable asset with a free guide developed from over a century of experience. Get the free report →*

Markets & Economy

JPMorgan ($JPM) finds profit in midsize businesses: America’s largest financial institution has been making up for lower investment banking revenue by earning fees from the 30K businesses that use the bank for credit, checking accounts, and payment processing, reports WSJ. [Read]

RV sales rebound: After a pandemic boom in recreational vehicle (RV) sales, Americans are embracing RV life. Though RV sales slowed, Americans are once again returning to dealerships — signaling a strong economy and renewed discretionary spending. [Read]

Biden outspends Trump on ads:  Biden’s presidential campaign has spent over $61.3M in recent weeks, nearly triple that of rival Donald Trump. But how long will this competitive spending last? [Read]

Business & Wealth

Tech giants participate in cyberattack simulation: Amazon ($AMZN), Microsoft ($MSFT), and Nvidia ($NVDA) joined the Cybersecurity and Infrastructure Security Agency (CISA) for its first Joint Cyber Defense Collaborative, focused on cybersecurity readiness. [Read]

Surgeon General calls for social media warnings: You’ll find warning labels on Adderall, nicotine, and marijuana — and soon, you might find one on your favorite social media platform. Dr. Vivek Murthy urged Congress to include display warnings about the risks and harms of social media on the platforms. [Read]

OpenAI could become a for-profit business: Long organized as a nonprofit, the AI firm is contemplating governance changes — eliminating the nonprofit board that once ousted CEO Sam Altman over how “forthcoming” he was with business leaders. [Read]

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DIGIT OF THE DAY

US Crime Rates Reach Historic Lows — With Violent Crimes Declining 15.2% In The First Three Months

Crime rates can’t escape the long arm of the law — and justice has its fingerprints all over this win. After facing a generational resurgence in violent crimes during the 2020 pandemic, the US is now seeing a significant turnaround. According to the latest FBI report, crime rates have plummeted to “historic” lows — with violent crimes falling by 15.2% in the first quarter of 2024 compared to the previous year.

• Among the notable declines, murder rates saw the sharpest drop at 26.4% — with reported cases of rape and aggravated assault also falling by 25.7% and 12.5%, respectively.

• Property crimes followed suit with a 15.1% decrease, including a 16.7% drop in burglaries and a 17.3% reduction in motor vehicle thefts.

No rest for the wicked: Despite occasional spikes, violent crimes have been lowering since 1992 — with 2020 standing out as a year of disruption and heightened crime rates due to societal challenges and reduced law enforcement presence. However, as of 2024, strengthened community initiatives and enhanced policing efforts have significantly reduced violent crimes. Jeff Asher from AH Datalytics suggests that while there are still six months in the year, “it’s plausible that this will be, by far, the largest one-year decline in American history.”