I reached out to shake her hand, and to my shock, the older lady kissed me hard on the lips. It was years ago in Belarus after giving a speech and using the example of harvesting potatoes with my grandpa as a boy. I was so shocked that I thought I would die. Similarly, the market was looking for a firm handshake from Chairman Powell and unexpectedly got a big kiss on the lips.
The Federal Reserve held interest rates steady on Wednesday, but the after-speech press conference is what caught the markets off guard. The Fed signaled its rate hiking campaign was finished by forecasting three rate cuts next year.
The Fed released some projection numbers, but what shocked the market more than the numbers was that the Fed felt confident enough to put them in writing for the world to see. Before the meeting, many guessed that Powell would speak negatively to rein in markets already rallying on anticipated rate cuts. Instead of being negative, he confirmed the market’s expectations and threw fuel on a hot fire.
Wednesday’s speech was a complete U-turn in tone from as recent as two weeks ago when Powell spoke at Spelman College in Georgia. This not only marked the end of the most aggressive rate hike cycle in forty years but set up a potential first rate cut as early as March 2024. That’s as close to an unexpected market kiss as you can get.
All this came about because inflation has declined much faster than the Fed expected and will soon hit its 2% target. If this happens, the Fed will shift its focus on lowering rates fast enough to avoid a recession. The US economy could still have a recession in the next few months, especially as interest-sensitive parts of the economy continue to struggle with high-interest rates, such as the housing market and manufacturing, which might already be in recession.
The good news is that unemployment rates are still low, as are claims for unemployment insurance, and the stock market is rallying. All of which doesn’t usually happen when the economy is about to go into recession.
The germaphobe in me wanted to melt into the floor when the old gal gave me the Belarusian cultural greeting. I guess she really connected with the potato story. I made a major life decision at that moment; I would never again use a potato story in a Belarusian speech; it’s just not worth the risk of that kiss. But I will stand in line every day for an unexpected market kiss.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
