Fed Adds To Market Tensions

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

More trouble in the Middle East last week made the Fed’s comments seem all the more poorly timed.  The Fed's inconsistent messaging on future rate cuts finally caught up to markets as the December Fed meeting that got equity bulls moving seems like years in the rearview mirror.  What was initially advertised by the Fed as 3-4 rate cuts, now appears like markets will only get 1 or 2 cuts.  Inflation is at 2.5%, near Powell's target for starting rate cuts - at least, that's what he said in December.  Rate cuts were thought to begin in May are June, now seem unlikely until September.  Basically, it's an old fashioned "rug pull" by the Fed.

The good news is that the economy is on solid footing.  Even if rate cuts don't materialize until September, even Fed presidents admitted last week that the economy is strong, giving them room to leave rates steady.  Retail Sales saw a nice bounce back in March, with 4% growth year-over-year and a revision higher for February's number.  Jobless Claims and Unemployment remain low.  The Atlanta Fed's GDPNow estimate for Q1 GDP points to 2.9% growth.  The Philly Fed Manufacturing Index saw a surge for April, with the highest reading since April of 2022 and more than quadrupling the March reading.  Inside the report, New Orders surged to a reading of 12.2 (more than double the previous month's reading) and shipments rose, as well.  There are no notable Fed speakers this week, so if geopolitical tensions ease, perhaps markets will settle down a little.

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