Economy
I'll give you three data points from this past week that highlight the complexity of what the Fed is tasked with doing. Number one: The US economy grew more than previously thought in the second quarter, with the latest gross domestic product (GDP) report from the Bureau of Economic Analysis showing a reading of 3.8% (up from the initial report of 3.3%). Number two: The number of people who filed for unemployment insurance last week dropped to the lowest level since mid-July, one of the lowest readings of the year. Number three: The Fed's favorite benchmark for inflation (core personal consumption expenditures) showed inflation rose to 2.91% last month, up slightly from the previous month, but pretty much where it was at the start of the year. The Fed's stated target for inflation is 2%, a level we haven't seen since February 2021.
These are just three data inputs that go into the decision-making calculator that is the Federal Open Market Committee's monetary policy. The Fed is tasked with balancing inflation and full employment. Looking at the economy from 30,000 feet, we have solid GDP growth, a labor market that is standing on somewhat-stable ground (we aren't seeing rising layoffs, but we aren't seeing the growth in jobs numbers we had last year), and inflation that remains stubbornly high and at-risk from reaccelerating because of tariffs (at least in the eyes of the Fed). Cutting rates now (which the Fed is expected to do twice more before the end of the year) could bolster the labor market and lead to gains in GDP. On the other hand, historically when the Fed wants to bring inflation down, they've raised rates, not cut them, so this might seem counterintuitive.
Markets
The S&P 500 fell 0.31% this week, ending a 3-week winning streak. It was a relatively calm week for markets with stocks not reacting much to fresh economic data. September is historically the weakest month for the stock market, but this year is proving to be quite the exception. With two trading days left in the month, the S&P is up 2.8% since Labor Day. We're still a few weeks out from the final earnings season of the year kicking off, and we'd love to see a repeat of last quarter's results. The market's got a lot of momentum behind it heading in to the final quarter of the year, but that has some market observers, including Jerome Powell, to believe stocks are getting expensive. Still others justify stock prices by pointing to the past and expected growth in corporate profits. Regardless of which camp you find yourself in, it's a good reminder to stay diversified and aware of changing market conditions.
What We're Reading
- Data Center Power Demand Begins to Surge Across the US- FactSet
- Money Is Simple- Safal Niveshak
Have a great weekend.
Dogwood Wealth Management