Markets adapt

Be careful what you wish for!

After months of expecting the Federal Reserve to cut its federal funds rate more than it said it would, markets recently had calmed down and seemed to reconcile to the idea that economic growth would be strong enough that the Fed would wait until mid-year. In short, markets have adapted to policymakers’ projections of three rate cuts during 2024. 

New data on February consumer confidence and manufacturing came in weaker than expected, driven mostly by softer employment components. Does this signal the long-awaited slowdown in economic growth, or is it a normal hiccup? Maybe it is due to the exhausting week, but markets tried to thread the needle by hoping it signaled more Fed rate cuts without weaker growth. Only time and more data will tell. 

The next FOMC meeting is March 20, at which the Fed will update its economic projections, including for fed funds, unemployment and economic growth. Recent speakers have reiterated Chair Powell’s patience theme.