The Fed Statement and press conference were bullish as the Fed took further hikes off the table and implied it would cut rates after the data validated that inflation is trending toward the Fed’s arbitrary 2% target. However, Powell indicated in the press conference that there is not likely to be a March rate cut, which caused the stock and bond markets to drop significantly.
We continue to be very bullish about the global stock and bonds market, as global central bank rate cuts drive long-term bond rates lower, which will drive global stock markets higher.
Specifically, we see PCE Core inflation dropping below 2.5% by the February report, which would be sufficient for the Fed to cut rates in May, but we think that a June rate cut is more likely.
We do not expect a March rate cut (less than 10% probability) as the Fed would have to make that decision based on the January PCE report which is likely to be above our estimated threshold of 2.5%.