Here are the takeaways from today's Morning Brief. sign up Every morning you will receive the following message in your inbox:
Ahead of this week's Fed meeting, everyone was paying attention.
But the most important number Fed officials presented was the upward revision of the FOMC's surprisingly bullish forecast for economic growth, as this week's chart shows.
In December, markets cheered as positive inflation data revived hopes for a rate cut. However, the economic growth rate forecast for 2024 has fallen to 1.4% from the 1.5% forecast for 2024 gross domestic product (GDP) growth rate as of September.
Disinflation may be stagnant now compared to December, but the FOMC still forecasts growth of 2.4% in 2024, nearly double its forecast just three months ago. And an optimistic Fed maintains expectations for three rate cuts this year, the most significant. old The numbers confirm that the economy is expected to remain strong and helped push stocks to new highs.
There is an old market view that lower interest rates are good for stocks. But so do a strong job market and healthy consumers, which is good for profits and, in turn, good for stock prices. Throw in some much-needed employee productivity gains, and things get even better.
The Fed's bullish growth forecast, even with expectations that growth will slow in 2025, is proof that the central bank is right about the market.
Breathtaking AI energy has propelled the S&P 500, but very real gains are supporting these high prices across the index. The job market remains healthy. Consumers are spending money. What's more, the Fed doesn't consider these trends to be inflationary.
“If what we have is a lot of supply and a lot of demand…that supply is actually meeting demand, because workers are not getting paid,” Federal Reserve Chairman Jay Powell said at a press conference this week. This is because they are receiving it and they are consuming it.” He likened the economic situation to last year, when inflation fell as the economy grew. A strong economy and strong stock market are in no way inconsistent with Mr. Powell's mission and mission.
The only fly in the ointment is that as long as interest rates are high, money will be expensive, forcing businesses into efficiency (profits!) rather than chasing growth and continuing discontent in the housing market.
That's why Powell kept bringing up Patrick Swayze on “Roadhouse” during press conferences as reporters tried to tease out hints about the Fed's plans. In his reply. How do we know when the Fed will cut rates? “That won't happen. I'll let you know.”
By now we all know what we're waiting for. That's compelling inflation data, and a dead stop.
And the fact that neither we nor Powell have seen it yet highlights the fact that obsessing over when the next cut will be may not be the best use of time.
ethan wolfman He is a senior editor at Yahoo Finance and runs the newsletter. Follow him on Twitter @ewolffmann.
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