The Federal Reserve (Fed) Chairman seems to be happy with the market’s new wisdom regarding the path of interest rates going forward.

The yield on the 10-year Treasury surged to about 4.4% just after the election, even though it has come back down close to pre-election levels recently.

Talking and exchanging communication with advisors and clients over the last several years has shown that many of them are concerned about the fiscal path of this country and the consequences it is having on our debt.

From current data, it is clear there are no signs the U.S. economy is currently facing challenges.

While tariffs have been utilized heavily in the past, both their usage and rates have fallen considerably over the past half century as countries have engaged in different stages of trade negotiations.

The disruptive effects of the pandemic are still reverberating across the economy and giving incorrect signs, in this case, of the U.S. labor market.

The recent fears regarding the state of the U.S. employment sector seemed to have disappeared completely this morning as markets are ‘recalibrating’ their view on the U.S. economy going forward.

After the first rate cut in two years went according to market expectations as the Fed reduced the federal funds rate by 50 bps, markets have continued to run with the Fed’s ball and seem to have a ‘sugar rush.'

The Federal Reserve (Fed), and markets, overreacted to the slightly higher inflation seen during the first quarter of the year. After that scare, the Fed went from expecting three cuts in the federal funds rate in 2024 to just one cut during its June dot plot release.

August’s employment report, which was weaker than markets were expecting but stronger than our call, cements our view that the easing cycle will begin during the next FOMC meeting, September 17-18.

June’s rate of inflation showed, for the first time in several years, an important slowdown in shelter costs, something that economists, us included, have been expecting for a very long time but had not materialized.

The relative weakness in July’s nonfarm payroll employment number and the increase in the rate of unemployment from 4.1% in June to 4.3% in July, triggering the Sahm Rule is a reminder of the difficult tasks ahead for the Federal Reserve.

As we start the second half of 2024 and we approach next week’s release of the preliminary report on real GDP for 2Q, we continue to expect 2H economic growth and inflation to downshift versus what we saw during 1H of this year.

We want to repeat what we have said in the past: “One data point doesn’t a trend make.” However, the June data, after weaker than expected readings for April and May, confirm our suspicion that inflation numbers during the first quarter of the year were a fluke.

The global population has surpassed 8 billion and according to the United Nations, it is projected to reach 9.7 billion in 2050.¹ However, the rate of population growth is slowing and is expected to continue to decline. Seems counterintuitive, no?

Total net worth, or household wealth, has reached a new record high, at least in nominal terms. This has pushed many to argue that Americans have been using the accumulation in net worth to increase consumption.

For those of you who are not math geeks, ‘rise over run’ is the formula for the slope of a line. What does this have to do with the latest Federal Reserve (Fed) decision, you may ask?

We are moving our first federal funds rate cut to September of this year compared to our current July call although we are going to get more information from Federal Reserve officials after the release of the Summary of Economic Projections and the new ‘dot plot’ on June 12.

Survey after survey has been indicating that Americans feel worse off today compared to the recent past; so much so that many of them indicate the economy is currently in recession, that the rate of unemployment is the highest in several decades, that inflation is very high today, etc.

We try not to react to just one data point because, as we have always said, “a data point doesn’t a trend make.” Furthermore, we don’t know if this is just a one-time event or if it is the start of something more.

The impact of high inflation on individuals’ finances is not something to take lightly, especially in the U.S., because for almost 40 years we have had no experience with such an event and have no clue how to deal with it or how to try to minimize its negative impact.

Before we start discussing the Consumer Price Index again, we want to remind readers that CPI inflation is not what Federal Reserve officials use to determine monetary policy. It is true that markets put a lot of emphasis on this measure, but we would like to caution giving too much importance to it.

Can Federal Reserve (Fed) officials live with such a strong labor market and still start lowering interest rates in June or July?

We are normally reluctant to use trendy phrases to explain either our good and/or bad calls regarding the U.S. economy. However, saying that ‘this time is different’ is more than fitting today to understand what has happened to the U.S. economy since the recovery from the COVID-19 pandemic.

Markets have taken the Federal Reserve (Fed) decision to keep about 75 basis points (bps) cuts in its dot plot as a very positive sign that the Fed is going to actually cut 75 bps during the year and are still acting upon the news.