"Negotiations are… Ongoing"

MONETARY

• Pursuant to the January FOMC meeting, the Federal Reserve opted to keep their Target Federal Funds rate steady at a level of 5.25-5.50%, a move that was widely expected by financial markets²
  • Chairman Powell referenced the notion that the Fed is likely anticipating initiating a Rate Cut Cycle in the coming year, easing Monetary Policy from restrictive levels to more normalized levels²
    • (Powell) “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”²
  • Regarding progress on the Fed’s goal to reduce Inflation, Chairman Powell noted that substantial progress has been made, although further improvements are needed²
    • (Powell) “The lower inflation readings over the second half of last year are welcome, but we will need to see continuing evidence to build confidence that inflation is moving down sustainably toward our goal. Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets”
  • Chairman Powell also reiterated the current strength of the Labor Market, and that the previously experienced forces driving labor supply/demand imbalances have continued to abate²
    • (Powell) “I think the labor market by many measures is at or nearing normal, but not totally back to normal.” “The economy is broadly normalizing, and so is the labor market, and that process will probably take some time.” “the evidence is that wage increases are still at a healthy level, very healthy level, but they’re gradually moving back to levels that would be more associated—given assumptions about productivity, are more typically associated with 2 percent inflation”²
  • Additionally, Chairman Powell noted that there has recently been a solid uptick in Consumer Confidence, which may provide a beneficial backdrop for continued consumer spending moving forward
    • (Powell) “…you’ve seen a couple of significant increases in consumer confidence or happiness with the economy. I guess that’s a good thing. That can support spending—can support economic activity. There’s some evidence of that. But it is a fact that we have seen a, you know, meaningful increase. I think levels of confidence are still maybe not as high as they’ve been at various times, but they certainly have come up.”²

FISCAL

• In a continuation of the annual budget negotiation process, bipartisan negotiators state that an agreement has been reached on the funding levels for each of the 12 spending bills required to fund the federal government through the year³
  • This bipartisan agreement does still need to be passed through congress, where it will likely face some degree of adjustment as it progresses³
    • (Rep. Mario Diaz-Balart – R) “We don’t have a lot of time. And there’s going to be a lot of really, really contentious issues”³
  • Currently the Federal Government continuing resolution will expire on March 1 & 8, with separate areas of the government expiring on each date³
    • The existing continuing resolution will remain in place until all 12 spending bills are agreed upon and finalized³
    • Currently, the existing continuing resolution holds government spending steady relative to the prior year, with no material increases or decreases in any category³

GEOPOLITICS

• China still struggling to have its economy regain its footing in the post-pandemic era as a continuation of its property bubble collapse, among other issues, stall economic growth¹
  • A number of noteworthy developments have occurred in the past month regarding the economic situation in China¹
    • Chinese property giant Evergrande was ordered by a Chinese court to fully liquidate and cease business operations after it failed to come up with a restructuring plan to resolve its bankruptcy issues¹
    • Youth unemployment in China continues to be a particularly sore spot for the economy, as record levels of youth unemployment have previously driven the government to stop reporting on the metric¹
      • Shortly after halting the reporting of this metric, the Chinese government instituted a ‘new methodology’ for reporting the metric – which makes the figure appear much lower.¹
    • Additionally, it appears that the Chinese government has been taking steps to scrub the internet of any commentary that either criticizes the economy, or highlights areas of concern. This comes after a warning from the China’s intelligence agency in December.¹
      • An article from Caixin Media disappeared from the company’s website mere hours after being posted, as it called for pro-market reforms and urged individuals to seek truth from facts¹
      • Separately, an article from Li Xunlei at Zhongtai Securities was also scrubbed from the internet after only a short while, as this article suggested household spending would remain low unless the Chinese government took action¹
      • Liu Jipeng, dean of the business school at the China University of Political Science and Law in Beijing was also forced to step down from his position after referring to China’s economy as quite being at a mature stage, as well as advising individuals to avoid Chinese stocks¹

[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. The Wall Street Journal. “Negative Takes on China’s Economy Are Disappearing From the Internet”. January 31, 2024
2. Federal Reserve. “Transcript of Chair Powell’s Press Conference Opening Statement January 31, 2024”. January 31, 2024.
3. Reuters. “US Congress Negotiators Reach Deal on 12 Gov’t Spending Bills -Republican Lawmakers”. January 29, 2024