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Markets take a victory lap after dovish Fed outlook…

Markets take a victory lap after dovish Fed outlook…

  • US stocks surged over the past week in the wake of a December Fed meeting that projected a surprisingly dovish tone with markets concluding the fight against inflation is largely over. While Chair Powell and other officials had repeatedly and steadfastly pointed to the dangers of inflation in prior meetings—even after the Fed had halted its hiking cycle in favor of an extended pause—they took a decidedly different tenor in December.  Notably, Chair Powell appeared to emphasize the progress made toward the Fed’s 2% inflation goal rather than the difficulty of the ‘last mile’ in battling inflation as had been the case in prior remarks.


  • Notwithstanding the market’s declaration of victory, it may be prudent for investors to tap the brakes on expectations as many sectors continue to appear fully valued with the market appearing to be pricing in five or six rate cuts next year. Meanwhile, there remain a host of risks on the horizon.  While the ‘cost-push’ component of inflation has indeed declined, the ‘demand-pull’ component is much stickier and will account for much of the ‘last mile’ of the battle to bring inflation down to the targeted 2%.  As noted previously, core inflation remains at the 4% level and has been trending up on a month-over-month basis.


  • Energy shares climbed behind a rally in WTI Crude Oil futures, which jumped 1.7% on Monday to end at a two-week high amid concern over supply disruptions following attacks on ships in the Red Sea.  While markets appear to be responding favorably to the higher oil prices, it’s not difficult to see that higher energy costs would undermine the Federal Reserve’s battle against inflation and could put projected 2024 interest-rate cuts at risk.  Back in 2021, when the Ever Given container ship blocked the Suez Canal for six days, the resulting delays to cargo deliveries took months to resolve.