Expectations Get Foggy

MONETARY

• Speaking at an event held at Stanford University, Fed Chairman Jerome Powell discussed a number of relevant economic topics germane to the current economic backdrop¹
  • Chairman Powell did appear to lean slightly more hawkish in his remarks, signaling that additional data and time were needed to assess whether recent pricing pressures in 2024 required an adjustment to the projected policy path
    • (Powell) “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent,”¹
    • (Powell) “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy”¹
  • However, Chairman Powell did reiterate the current strength of the U.S. Economy, highlighting various developments in the labor market as well as on inflation progress¹
    • (Powell) “Recent readings on both job gains and inflation have come in higher than expected,”¹
    • “The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”¹
  • There does appear to be some variability amongst Fed policymakers as to what the appropriate number of rate cuts should be this year¹
    • Atlanta Fed President Raphael Bostic believes it may be appropriate to undertake a single rate cut this year in response to higher prices¹
    • San Francisco Fed President Mary Daly stated that three rates cuts could be a ‘reasonable baseline’¹
    • Cleveland Fed President Loretta Mester noted that rates cuts were likely later this year, however longer-term rates may be higher than previously anticpated¹
    • Market expectations for a June rate cut have been pared back in recent weeks, however there is still a noteworthy probability associated with a rate cut at the June FOMC meeting¹

FISCAL

• President Biden signs into law the recently passed $1.2T 2024 Fiscal Year Budget for the Federal Government. Between both recently agreed upon spending packages, the total Federal Government budget will be $1.66T in FY 2024³
  • Some noteworthy highlights of the spending package include:
    • Defense Spending of $825B³
    • $48.6 billion in discretionary funding for the National Institutes of Health, representing an increase of $300 million in base funding over fiscal year 2023³
      • That includes a $75 million increase for mental health research, a $100 million increase for Alzheimer’s disease research, a $120 million increase for cancer research, and a $5 million increase for opioid research³
    • $4.6 billion for substance use prevention and treatment. The bill provides $1.5 billion for state opioid response grants, and $145 million for the Rural Communities Opioid Response Program³
    • $4 billion for the Low Income Home Energy Assistance Program, representing a $25 million increase, aimed at helping low-income households heat and cool their homes³
    • Gives service members a 5.2% pay raise³
    • $1.18 billion for the Small Business Administration, including $316.8 million for entrepreneurial development grants³
    • $300 million in funding for Ukraine Security Assistance Initiative³
    • $792 million, an increase of $57 million, for the U.S. Capitol Police recruiting and retention efforts³

GEOPOLITICS

• Treasury Secretary Janet Yellen arrives in China as part of a weeklong trip to discuss U.S./China economic relations²
  • Yellen’s trip is multifaceted in nature and largely seeks to further advance U.S. economic interests²
    • (Yellen) “During my time in China, I’ll focus on advancing a healthy economic relationship that provides a level playing field for American workers and firms, and furthering cooperation on shared challenges like illicit finance and climate change,”²
    • (Yellen) “As the world’s two largest economies, it is critical that we maintain clear channels of communication – particularly when we disagree. The American people expect us to responsibly manage this relationship, and the world expects that we work together where we can.”²
  • Trip comes after a recent phone call between President Joe Biden and Chinese President Xi Jianping²
    • The two leaders utilized the time to highlight differences of views on a number of relevant issues, with particular focus being on each leader prioritizing the domestic sovereignty of burgeoning chip manufacturing and AI industries²
    • The U.S. has banned the export of certain high-performance chips to China. Additionally, China has imposed its own export restrictions on the U.S. as it pertains to various rare earth metals²

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. CNBC. “Fed’s Powell emphasizes need for more evidence that inflation is easing before cutting rates”. April 3, 2024
2. South China Morning Post. “Janet Yellen in China: US treasury secretary aiming to keep trade relations on firmer footing”. April 3, 2024
3. NPR. “Biden signs a $1.2 trillion funding package, averting a partial government shutdown”. March 22, 2024