On Friday, the government will release its latest inflation report, which shows how much prices have changed for things we often buy. This report is especially important to the Federal Reserve, which uses it to make decisions about interest rates. Financial markets will be watching closely to see how inflation has changed because the Fed wants to keep inflation low and stable.
Inflation, measured by core PCE, rose 2.8% annually in February, on par with estimates. Both headline and core PCE increased 0.3% monthly.
Despite meeting expectations, the Fed remains likely to hold interest rates steady. However, rising consumer spending (0.8% monthly) could lead to additional inflation pressures.
The report indicates inflation remains sticky, potentially delaying Fed rate cuts expected for June.
The stock market had a good day on Wednesday, with the overall market (S&P 500) reaching a new high. Key inflation data is expected to be released on Friday, and many experts are watching to see if it might encourage the Federal Reserve to slow down how quickly it's raising interest rates. Several companies saw big changes in their stock prices, with MC soaring and GameStop plummeting.
The Federal Reserve is carefully considering interest rate cuts while balancing concerns about inflation. Having previously made mistakes by prematurely loosening policy, the central bank aims to avoid repeating those errors. While the economy is showing signs of growth, officials recognize the risks of allowing inflation to persist for too long. Therefore, they may take a cautious approach to rate adjustments, keeping them higher for a longer period to ensure price stability.
The S&P 500 gained this week, marking its biggest weekly increase this year, despite most stocks falling on Friday. The market was influenced by the Federal Reserve's plan for further interest rate hikes, but not all sectors performed equally. While technology stocks like Apple and Microsoft showed limited growth, financials and industrials saw improvement. Company-specific news included a decline in Nike and Lululemon shares due to revenue concerns, while FedEx shares rose after exceeding profit expectations.
Investors are adjusting their expectations for future interest rate movements due to recent economic data and the Federal Reserve's policy decisions. The market previously anticipated six rate cuts, but now only three are expected. Inflation remains high, leaving investors uncertain about the timing and extent of rate cuts. A cautious approach is advised, with gradual adjustments to bond portfolios recommended. Domestic U.S. fixed income investments are seen as relatively stable, while international investments may provide opportunities but require careful consideration.
The Federal Reserve is considering holding off on interest rate cuts due to sticky inflation. Former Fed Vice Chair Richard Clarida believes that if the Fed were focusing on the higher-than-expected Consumer Price Index, they wouldn't even be discussing rate cuts. He advises the Fed to be cautious and data-dependent, as inflation may not be decreasing as quickly as anticipated.
The Federal Reserve has kept interest rates the same, disappointing many who hoped for cuts. As a result, borrowing costs for things like mortgages, credit cards, and student loans will remain high for now. While inflation has eased slightly, it's still a concern, and the Fed wants to make sure it's under control before lowering rates. Once rates do start to come down, borrowing costs may gradually decrease, but they're unlikely to drop significantly.
The Fed has kept interest rates steady at their highest level in over 23 years. However, they indicated that they may begin lowering rates by June due to the economy still growing and inflation starting to ease. This change in outlook is a result of higher-than-expected inflation data at the start of 2023. The Fed's projections show a likelihood of three quarter-percentage point cuts in 2023 and possibly more in subsequent years.
Despite a more positive economic growth outlook, the Federal Reserve still predicts three interest rate cuts in 2024. This is because inflation is still higher than the Fed's target of 2%, and recent data suggests it may not be declining as quickly as hoped. The median projection for the federal funds rate is 4.6% in 2024, down from the current 5.25%-5.50% range.
The Bank of Japan raised interest rates for the first time in 17 years, indicating a shift towards an inflationary economy. This move is expected to benefit Japanese equities and may influence the Federal Reserve's upcoming decision. While rate cuts are generally favorable for stock markets, investors may want to prioritize high-quality companies in response to persistent inflation concerns.
Despite efforts, inflation may take longer to tame, potentially leading to a "deferred landing." The Federal Reserve will remain cautious, keeping interest rates high, which could benefit those earning income from portfolios. Experts advise against changing long-term investment strategies, maintaining diversification and asset allocation, as timing inflation projections accurately doesn't necessarily guarantee better returns.
