Economy
The Federal Open Market Committee (FOMC) met this week and decided to leave interest rates unchanged on Wednesday. Fed Chair Jerome Powell spoke later at a press conference defending the decision, pointing to inflation that remains just above its target of 2% and calling out tariffs as a major contributor to future inflation expectations and uncertainty. The Fed has adopted a "wait and see" approach to monetary policy, meaning they will watch what the labor market does and monitor the pace of inflation as they decide when to cut rates next. In fact, the Wall Street journal reported that he used the word "wait" more than 20 times in his speech. A rate hike from here is something that isn't even being considered by Wall Street, but when we see the next rate cut is very much unknown. President Trump has called on the Fed to cut rates immediately but, according to the CME FedWatch Tool, we're unlikely to see any reduction in the Fed's rates until the end of July. That same tool projects the Fed issuing 3 or 4 rate cuts before the end of the year. Next week will see a string of inflation reports that will play into the Fed's next move just over a month from now.
Markets
The S&P 500 shed 0.47% in a fairly muted week as markets reacted to new of a US/UK trade deal as well as the FOMC announcement. Earnings season continues to show strong results for the first quarter with 90% of the S&P 500 companies already reporting and 78% of those companies reporting higher earnings than expected, according to FactSet. It's not just the number of companies beating expectations, but the earnings numbers have been higher than expected. Without getting too far in the weeds, it's fair to say that businesses on balance had a pretty good start to 2025. However, with tariffs looming, the strength of the rest of the year for corporate earnings has been called into question. Despite that uncertainty, markets have shaken off the initial shock of the tariff announcements back in early April. If the market had you spooked a few weeks ago, now would be a perfectly reasonable time to reassess your appetite for risk. To that point, our team is always available to speak with you about any concerns you have.
What We're Reading
- Why the Fed Isn’t Ready to Join Other Central Banks in Cutting Rates - WSJ
- Buy the Dip: The Trend that Keeps Stocks from Crashing - The Economist
Have a great weekend.
Dogwood Wealth Management