Fundstrat's Tom Lee predicts Fed rate hike today, sees equity rally

Fundstrat's Tom Lee expects the Federal Reserve to raise interest rates by 25 basis points today, per BeInCrypto. He argues the move could spark a substantial equity rally by removing pressure for further increases, sending Treasury yields lower.

Bottom line — Lee sees S&P 500 topping 8,200 by year-end, citing corporate earnings and the AI trade.

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• Lee said the Fed does not need to hike to curb inflation, citing Goldman Sachs data on four temporary distortions—portfolio fees, flash memory, tariffs, and energy—that add 1.7 percentage points to headline PCE inflation, per BeInCrypto.
• Those distortions could fade within six months, cutting PCE by about 100 basis points on their own, Lee estimated.
• Lee expects markets to treat the hike as the last of this cycle, with heavy cash on the sidelines and a string of down days fueling a rebound, per BeInCrypto.
• He reiterated that corporate earnings have not peaked, pointing to depressed housing investment as room for growth that could add $30 to $50 to S&P earnings.
• Lee still expects a larger pullback later this year tied to margin debt, leverage, and IPO activity, but said pessimism itself is why markets have not peaked yet.

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