MFS Investment Management’s Post

"While the Fed views anchored inflation expectations as important in preventing inflation from becoming embedded in the economy as it was from 1966–1982, the general surge in optimism may create a challenge in the Fed’s effort to bring inflation sustainably down to its 2 percent target. That’s because consumer expectations are a double-edged sword. So, while Powell sought to tighten economic conditions through the expectations channel in 2022, his comments and the FOMC’s projections may have the unintended result of loosening conditions and fueling a rise in growth, which could reignite inflationary pressures." #marketcommentary #investwisely #wealthmanagement #northwesternmutual

📊 𝗞𝗲𝘆 𝗜𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗿𝗼𝗺 𝗥𝗲𝗰𝗲𝗻𝘁 𝗨𝗦 𝗖𝗣𝗜 𝗗𝗮𝘁𝗮 𝗮𝗻𝗱 𝗙𝗲𝗱𝗲𝗿𝗮𝗹 𝗥𝗲𝘀𝗲𝗿𝘃𝗲 𝗔𝗰𝘁𝗶𝗼𝗻𝘀: 𝗣𝗲𝗿𝘀𝗶𝘀𝘁𝗲𝗻𝘁 𝗜𝗻𝗳𝗹𝗮𝘁𝗶𝗼𝗻: March 2024 US Consumer Price Index (CPI) data reports a 0.4% monthly increase, mirroring February's rise, and a 3.5% increase year-over-year, marking the highest since September. Core inflation (excluding food and energy) also recorded a 0.4% monthly rise, maintaining a year-over-year rate of 3.8%. 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗜𝗺𝗽𝗮𝗰𝘁: Despite a decline from the peak of 9.1% year-on-year inflation in June 2022, inflation remains above the Federal Reserve’s target of 2%, suggesting an ongoing challenge in curbing price levels. 𝗙𝗲𝗱'𝘀 𝗦𝘁𝗮𝗻𝗰𝗲: Recent Federal Open Market Committee (FOMC) minutes indicate significant concerns about the slow decline in inflation. The Fed maintains short-term rates at 5.25%-5.5%, focusing on gaining more confidence that inflation is heading towards their 2% target before considering rate cuts. 𝗚𝗹𝗼𝗯𝗮𝗹 𝗠𝗮𝗿𝗸𝗲𝘁 𝗥𝗲𝗮𝗰𝘁𝗶𝗼𝗻𝘀: Elevated US inflation rates have impacted global equity markets, contributing to declines in major US stock indices and affecting international markets, including India. This situation underscores the interconnectedness of global financial systems and the significant influence of US economic indicators. 𝗙𝘂𝘁𝘂𝗿𝗲 𝗢𝘂𝘁𝗹𝗼𝗼𝗸: Current market projections now anticipate fewer rate cuts for 2024 (2 instead of 3 earlier projected rate cuts), with the first reduction possibly delayed until September, contrary to earlier expectations of a June cut. This adjustment reflects market sentiment adjusting to the "hot" inflation data. 𝗤𝘂𝗮𝗻𝘁𝗶𝘁𝗮𝘁𝗶𝘃𝗲 𝗧𝗶𝗴𝗵𝘁𝗲𝗻𝗶𝗻𝗴: Discussions within the Fed also touched on the possibility of reducing the pace of the balance sheet reduction, hinting at a shift in policy to support a more stable economic recovery. P.S. Drafted by me, edited by A.I.

Today's overnight news...Outlook for U.S. inflation ? ...: The outlook for U.S. inflation is shaped by a number of evolving factors, both domestic and global, and it appears to be moderating, though several uncertainties remain: 1. Slowing Inflation Trends: Core Inflation Moderation: Recent data suggest that U.S. inflation has been trending lower, with core inflation (which excludes volatile food and energy prices) coming down from its peak in 2022. This reflects the Federal Reserve's aggressive rate hikes over the past year, which have cooled demand in key areas like housing and consumer spending. Energy Prices Stabilizing: Although energy prices spiked in 2022 due to geopolitical tensions (especially Russia’s war in Ukraine), they have stabilized recently. Oil prices are currently little changed, which could help keep headline inflation in check unless another supply shock occurs. 2. Federal Reserve Policy: Cautious Approach to Rate Cuts: Fed Chair Jerome Powell has emphasized that while inflation is easing, it remains above the Fed’s 2% target. The Fed is likely to maintain a cautious approach, potentially holding rates higher for longer to ensure inflation doesn't reaccelerate. Any future rate cuts will likely depend on further evidence of cooling inflation. Wage Pressures and Labor Market: One of the concerns for the Fed is that the labor market remains tight, with wages still rising. Although inflationary pressures from wages have softened, they could reemerge if labor demand remains strong. Treasury Secretary Janet Yellen’s comment that inflation risks have “meaningfully diminished” points to optimism about the Fed’s strategy, but tight labor conditions could be an ongoing challenge. 3. Supply Chain and Global Factors: Supply Chain Normalization: Supply chains, which were a significant driver of inflation post-pandemic, are improving, helping to ease price pressures on goods. This has been a major contributor to lower inflation for goods, particularly in sectors like automobiles and electronics. China's Economic Slowdown: A slowdown in China’s economy, especially in areas like manufacturing and real estate, could dampen global demand for commodities and energy, which in turn could help ease U.S. inflation, particularly in energy and raw materials. However, it also adds uncertainty to global supply chains and demand. ...to be continued...

📈 #StockTake: Last week brought mixed news for markets 🌍 While US inflation ticked up, Europe saw some positive indicators. With inflation becoming a potential political hot potato and the Fed's cautious stance on rate cuts, investors are on edge. Stay tuned for updates 🏦💼 #InvestmentInsights #MarketTrends

The latest in a stream of stronger-than-expected US economic data has put paid to the Goldilocks scenario that growth can rise while inflation falls. To learn what it means for Fed policy, read or listen to our Weekly Market Update. #useconomy #inflation #growth #fed #interestrates

Something to think about with your morning coffee ☕ Tom Fitzpatrick, managing director of global market insights at R.J. O’Brien & Associates, said if you take the readings of the last three months and annualize them, you’re looking at a supercore inflation rate of more than 8%, far from the Federal Reserve’s 2% goal. “As we sit here today, I think they’re probably pulling their hair out,” Fitzpatrick said. The Fed will have a hard time bringing down inflation with more rate hikes because the current drivers are stickier and not as sensitive to tighter monetary policy... thoughts? #inflation #economy #coffeethoughts

“…Markets viewed a March cut as highly likely, as recently as last month. However, given recent cautious Fed statements, now markets see rates just as likely being held steady in March. Importantly, markets imply it’s highly likely interest rates are lower by early summer. Fed leaders likely would not disagree with that view on recent economic evidence, but if so, the Fed policymakers will start to update their language at the January meeting to prepare for such a potential move in interest rates.” https://lnkd.in/e_Dkvziw

#novumcapitalpartners Today was an important day for inflation, with the release of price indicators in both Europe and America. In Europe, flash estimates surprised on the upside, showing a +2.6% YoY increase in May compared to an estimate of +2.5%. The core measure, on the other hand, surprised even more, with an increase of two decimal points above the consensus to +2.7% YoY. These negative surprises did not dampen expectations of an ECB rate cut as early as June, but they are fueling doubts about the intensity of cuts in the second half of the year, with the market currently expecting 58 bps of cuts by year-end (target rate at 3.33%). In America, the PCE (personal consumption expenditures price index), the Fed's preferred measure due to its lower weighting on housing costs and thus being less cyclical and volatile, met expectations. No surprises here; the core index, the most important measure, came out in line with expectations at +2.8% YoY. Prior to this data, the market was anticipating a slight reduction in Fed Funds rates from 5.33% to 4.98% by year-end (a 35 bps cut, which is slightly more than a 25 bps cut, compared to the 7 cuts priced at the end of 2023). For the time being, danger appears to be averted, especially since the most critical data came from the US. With the earnings season just around the corner and the interest rate market expected to stabilize after the recent tensions, the market could soon enter a ‘summer’ mode, barring any geopolitical surprises. The situation on the two fronts of conflict must be monitored closely. Credits: Vittorio Treichler - Partner and Market Strategist at NOVUM CAPITAL PARTNERS SA #Inflation #EconomicIndicators #ECB #FederalReserve #InterestRates #FinancialMarkets #Economy #Geopolitics

🔍 Insightful Update: Powell on Inflation 🔍 Federal Reserve Chair Jerome Powell recently addressed the pace of inflation, noting that it's taking "longer than expected" to reach the Fed's 2% target. This observation highlights the complexity of economic trends and the need for careful monitoring. ⚖️ Balancing Act: Powell's remarks underscore the delicate balance the Fed must strike between fostering economic growth and managing inflationary pressures. As businesses and consumers navigate this landscape, staying informed is key. 💼 Business Implications: For businesses, this insight could mean adjusting pricing strategies, managing costs, and closely monitoring market trends. Understanding these dynamics is crucial for making informed decisions. 📈 Market Watch: Investors and financial professionals will be closely watching how these comments impact market sentiments and the Fed's future policy decisions. This underscores the importance of staying abreast of market news. 💬 Join the Conversation: What are your thoughts on Powell's remarks? How do you see this affecting economic policy and business strategies moving forward? Share your insights in the comments below! #EconomicInsights #FedPolicy #InflationTrends #BusinessStrategy #MarketUpdate