QUOTE OF THE WEEK
“Never stop learning because life never stops teaching.” – unknown
TECH CORNER
The Fed meets this week and will issue a statement on Wednesday called the FOMC statement with updated economic projections. Investors and analysts will be going through the statement searching for any signal about what our central bank will do next. In particular, the market is wanting to know about when rate cuts will start, how fast those rate cuts will come, or if the Fed will hit the “pause” on the prospect of rate cuts until deep into 2024.
Things have changed a lot since the last Fed meeting on January 31st. The futures market expected about six rate cuts of 25 basis points each this year with the first starting in March. As of
Friday the market was expecting only three rate cuts this year with one coming in either June or July.
The problem is that inflation is starting to come back. The two CPI reports since then show consumer prices up at a 4.6% annual rate in the first two months this year. Core prices, which exclude food and energy, were also up 4.6% which is what the Fed pays attention to.
These figures don’t come remotely close to the 2.0% inflation goal they claim to target.
The issue of rate cuts doesn’t really address the problem. A small rate cut isn’t going to help companies that have to refinance their debt this year. Many companies lowered their interest rate debt exposure during and just after the COVID recession when the Fed was keeping rates historically low. Now they have to refinance that debt at much higher interest rates, thus that interest cost will flow straight to the bottom line, lowering profits. We are already at bankruptcy levels of the Great Recession of 2007-2008. At these rates, we can expect more bankruptcies and/or more company layoffs which will slow the economy.
