Economy
On Wednesday, Federal Reserve chairman Jerome Powell announced that the Fed was going to keep rates steady and take it's time as they decide when to cut rates again. He was also optimistic on the current state of the economy, saying they are in a good position to wait and see before making their next move. “If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.” He mentioned that a good part of the Fed's expectations on future inflation comes from tariffs, but that higher inflation may be offset by slower economic growth as it relates to their next steps with interest rates. If inflation were higher, you'd expect the Fed to keep rates higher to reign in inflation. On the other hand, if economic growth slows too much, the Fed might be inclined to cut rates as a form of economic stimulus. The term for a period of high inflation alongside low economic growth is "stagflation" - a blend of the words stagnant and inflation. The Fed is forecasting two rate cuts between now and the end of the year, but after Wednesday's FOMC meeting, Wall Street is pricing in a higher probability of three or four cuts.
Markets
The S&P 500 snapped a four week losing streak rising by 0.51% by Friday's close. The high point for the week occurred during Powell's press conference as markets were looking for any indication as to what the Fed might be doing with rate cuts this year. A few weeks ago we wrote about the "Trump put" and the "Fed put". While the former seems to have grown increasingly unlikely to come to the market's rescue, the latter may still be in play. In a few weeks we'll begin hearing from corporations on their first quarter earnings results. The correction we've seen in the stock market over the last month or so has been a repricing of how tariffs could impact corporate earnings. The t-word is no doubt going to be cited heavily on these earnings calls as company's give guidance on future performance. Time will tell if the market is currently priced correctly as we are less than two weeks away from the day a large amount of tariffs go into effect.
What We're Reading
- Considering the Risk of Stagflation & Uncertainty - The OnInvesting Podcast
- Swiss Watch Exports Report a Marked Slowdown - WSJ
Have a great weekend.
Dogwood Wealth Management