The Fed Can Afford To Wait
The inflation-and-growth story is still unfolding.
Unless the S&P 500 can pull off a greater than 2.7 percent rally today, the index is going to close in the red for April and end a streak of five straight positive months.That’s OK. We did follow the historical pattern for the month, with a negative front half weighing too much for a late rally to overcome.
This mini-recovery is supported by strong earnings for Big Tech and other companies as well, the bulk of reporting season this time around lining up with a Federal Reserve quiet period.
That’s better than OK. That’s downright healthy. Indeed, the S&P 500 is demonstrating that it’s at least as sensitive to earnings and economic data as it is to interest rates and monetary policy.
We’ll be interested to hear what Fed Chair Jerome Powell has to say about what is a complex array of inflationary signals, including unit labor costs and the status of the US dollar.
We’ll also want to know his thoughts on inflation expectations.
People like Neil Dutta of Renaissance Macro Research are pretty confident right now that inflation will be slowing into the end of the year.
The first quarter was “obviously strong for inflation, as we all know,” Dutta said to Bloomberg’s Tom Keene last week.
But real wages weren’t up much at all, and a lot of the forward-looking data Dutta looks at – including the quits rate and posted wages – suggest further cooling ahead.
The risk, according to Dutta, is the threat inflation represents to growth.
All things considered, if the Fed has nothing to do right now, that’s good. A healthy labor market and firm inflation will have that effect.
As Dutta noted, recent data reinforce Powell and company’s belief that they still enjoy the benefit of time.