Liz Looks at: The Fed’s November Statement

Happy Days

A week that includes both a U.S. presidential election and a Fed meeting brings with it the potential for big moves in markets, and move they have… to the upside.

Today’s Fed meeting resulted in a widely expected 25 basis point rate cut, bringing the target fed funds rate down to a range of 4.50-4.75%. Unlike many prior Fed statements, even Fed Chair Jerome Powell’s comments during the press conference didn’t move markets much.

It’s remarkable how much rate cut expectations have moved this year, as it looks like we may finish the year with only four cuts total, down from an expectation of nearly seven earlier in the year.

Even more remarkable, perhaps, is that the S&P 500 is still up over 25% YTD despite three fewer cuts expected than at the start of the year. It was widely believed that rate cuts would be the fuel stocks needed to power ahead.

Needless to say, stocks have found fuel in other places and our dependence on quick and dramatic rate cuts has waned. It should be no surprise then, that markets have had a muted reaction to Fed statements for the last couple meetings.

Do As I Say, Not As I Do

The main messages from this statement were:

•   The economy continues to expand at a solid pace

•   The FOMC sees risks as balanced on both inflation and employment

•   The committee does not need to be in a rush to bring rates down

To paraphrase, Powell characterized the current environment as approaching a more “normal” state without using the word normal.

One of the questions posed in the press conference was why any cuts are necessary at all given their sentiment on economic strength and balanced risks. It was a fair question, and the answer was that the FOMC remains on a path to neutral, and nothing has changed.

Despite the recent rhetoric around inflation risks rising, and the movement in inflation breakeven rates, Powell was also clear that they still see long-term inflation expectations as well-anchored. In other words, there’s no inflation risk present as of now. Moreover, he pointed out that the Fed’s read on inflation includes the 12-month PCE data, but also the 3- and 6-month measures of PCE which can give a more current view of where they are on the path.

According to both the 3 and 6-month annualized PCE data, progress has clearly been made and we are very near the Fed’s target of 2%.

The main takeaway is that it will take much more than news of a new administration and possible policies that could change the inflation outlook to affect the Fed’s approach. This meeting was more or less a nonevent. The rate cut was already priced in, Powell’s commentary was not much different from his message in September, and he rebuked any suggestion that the election outcome has influence over their policy decisions.

After a dramatic couple days in markets, it’s nice to have a calm reaction to a Fed meeting. I think there’s a good chance this is one of the only very calm reactions we’ll see, so we should enjoy it for now.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.

Photo Credit: Tanarch

OTM20241111