As expected, the Federal Reserve held their party line and kept interest rates unchanged at the conclusion of their recent meeting. There was no big surprise in the statement alone, in fact this had been widely anticipated. The more relevant piece of their actions (or lack thereof) was the post meeting statements that were made by Chairman Powell. The FOMC (Federal Open Market Committee) eliminated language that had suggested a willingness to keep raising interest rates until inflation had been brought under control and was headed toward the Fed's 2% inflation target. The Fed did, however, state that since inflation remains above the central bank's target, there are no plans to lower rates any time soon. The announcement also gave very little indication as to why it was done hiking, merely listing the variables that will be considered when adjusting their policies. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said. Love it or hate it, the Fed has remained steadfast in their policy decisions so far and in my view has done a good job at staying measured and on course. A difficult task to say the least.
For now, it seems a March cut to the base rates seems unlikely. This will go against what many economists had predicted late last year and into 2024. Adding to the mix are the January jobs reports that were released today. Nonfarm payrolls expanded by 353,000 for the month, better than the Dow Jones estimate for 185,000. The unemployment rate held at 3.7%, against the estimate for 3.8%. Average hourly earnings increased 0.6%, double the monthly estimate. On a year-over-year basis, wages jumped 4.5%, well above the 4.1% forecast.
Job growth was widespread in January, led by professional and business services with 74,000. Other significant contributors included health care (70,000) and retail trade (45,000). These data points remain an important piece of the economic health of the U.S. economy. These numbers should also provide “shelter” for the Fed to keep rates unchanged for now. There is no doubt that lower rates can help other pieces of the economic engine like housing, cost of goods, lending, and corporate profits. But with the data remaining strong and the consumer still on track, the need to adjust things at this point seems unlikely. I do think cuts will come in 2024, but not at the pace or level many are likely hoping for.
Corporate earnings continued to rapidly roll out this week and some of the big names came out strong (AMZN, META, Exxon,) while a few others like Apple showed some struggles. It’s still early to get a sense of what 2024 will truly look like but the evidence points to a generally healthy and cost-conscious corporate environment for now. The power of AI is spreading further out away from tech companies alone and the WFH (work from home) stance is changing. The further we move away from the COVID and interest rate rising environment, the greater sense of normalcy I think we are all feeling. I think we can all welcome that ideal with open arms.
Happy Groundhog Day! I love this day. Perhaps it’s the thought that we are getting closer to the other side of winter and shorter days that brings me joy. This winter has certainly seemed “grayer” than those in recent years. I, for one, have no problem with that furry little dude NOT seeing his shadow. Has anyone been to Gobblers Knob on this special day? I would love to hear your story. This is a bucket list item for me! An early spring? I’ll take it.
Have a nice weekend.
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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