Friday the Thirteenth – Oooohhh! However, investors weren’t too superstitious, pushing the S&P500 to less than 1% away from a new all-time high. Consumer confidence rose as well, albeit primarily for future expectations. Bottom line, the Federal Reserve will start lowering interest rates next week, and it seems every one is happy when rates are headed down. We agree that rates will decline, as Chair Powell has made the path clear. We are far less sure that the rate of descent will come close to matching the aggressive expectations of the market – who still have over six eases priced in over the next four Fed meetings though the end of January. With September’s data behind us, the Fed will only see four more rounds of economic inputs over that period. We do not expect the economy – especially the labor market – will perform so poorly, or inflation so well, that the market’s pace can be maintained. The first signal will be in the Summary of Economic Projections that will be released with the FOMC’s move next Wednesday. In July, that document expected just one cut by year end, and the forecasts on inflation and unemployment were roughly accurate. Of course, the market had backed down to pricing only one and a half eases back then too. Will the FOMC show its independence – from the market and politicians – by easing ahead of the election, but projecting significantly less ease than is now priced in?
top of page
bottom of page
Comments