Strong economic data continued this week, with the CPI, PPI and retail sales all suggesting that inflation remains a concern due to continued robust consumer demand. In our view, the economy will continue to grow at roughly 5% in nominal terms in the fourth quarter, with growth evenly split between real growth at 2.5% (which matches the current GDPNow estimate) and a resurgence to 2.5% inflation for the GDP deflator, after a soft 1.8% in the third quarter. Since the 50-basis point ease in September, the economic data has run hotter than expected despite storms and strikes, with the start of Fed easing and the election of President Trump fueling a strong surge in equity values. As we believe the strength in consumer activity is driven by reduced savings from current income due to actual and expected asset appreciation, we see no reason the economy will slow until the optimism about Trump policies ebbs. The markets are acting much like they did in late 2023, when they had priced in seven easings over the next year – but equities surged despite no easings as very strong economic growth was reported. Investors again expected short rates to plunge in late 2024 through 2025, but now feel that the FOMC may only ease three more times after the 75 basis points already in place. However, less Fed ease is no longer a detriment to higher stock prices as the economy is performing better than expected and investors see a wave tax cuts and deregulation providing plenty of fiscal stimulus in 2025 and beyond.
top of page
bottom of page
Comments