Words Have Consequences
That’s especially true for Jerome Powell’s.
It could not have been a better Friday before a Fed week.Stocks surged on strong earnings reports from Alphabet $GOOGL and Microsoft $MSFT, with management of both Big Tech bellwethers noting healthy returns on early investments in artificial intelligence projects and underscoring the fundamental drivers behind this leg higher for equity indexes.
Price action on Friday closed the best week of 2024 so far, even as a Personal Consumption Expenditures Price Index print for March all but guaranteed a “higher for longer” federal funds rate target range.
At the same time, “braced” is probably a fair way to describe the posture as investors, traders, and speculators prepare for the April 30-May 1 Federal Open Market Committee meeting.
People know there will be no rate cut this week or in June and maybe not even in September.
We just need to hear the words Federal Reserve Chair Jerome Powell will use to describe things during his press conference on Wednesday.
The year-over-year print was 2.7 percent at the headline level, 2.8 percent at the core level.
What’s happening here is that “economic resilience” is making it harder for the central bank to cut interest rates. And that is broadly positive, for sure.
Confounding for forecasters is when higher borrowing costs will curtail demand. A still-healthy labor market, with rising wages and productivity, is creating a positive feedback loop in a consumption-driven economy.
Within that PCE report for March we learned as well that Inflation-adjusted consumer spending grew by 0.5 percent for the second straight month, equaling the strongest growth on that metric early 2023.
Back in December, Powell merely spoke of a more dovish immediate future given then-recent progress on inflation.
Recent data suggest he may have to be more hawkish on Wednesday.
I’ll be curious to see if he has anything to say about exogenous things like geopolitics or the impact of Fed policy in a global context. Those are major variables.
The domestic song sorta remains the same, though. And that’s pretty good.