Thursday, July 27th ~ Jay Hatfield, CEO - The Fed raised rates by 25 bps yesterday (as expected) and had no significant change to its statement. In our view, the Fed Chair’s press conference was neutral with respect monetary policy. He signaled that more hikes could be appropriate but made it clear that the Fed was data dependent (despite the fact that the dot plot indicates one more rate hike). Both the stock and bond markets were relatively unchanged after the announcement.
We believe that the Fed will not raise rates again (during this cycle) after this meeting. We expect the job market to soften and cool off over the next two months, while inflation will decline as well. Nonetheless, the Fed continues to implement its flawed policy framework that primarily focuses on labor and wages as the key drivers of inflation despite strong evidence to the contrary, that inflation is in fact primarily caused by excessive money supply growth and energy/commodity shocks. Consequently, the Fed continues to needlessly raise rates (despite the fact that inflation is now manageable), which could be a much larger risk to the economy and middle class if it results in a recession.
Based on earnings so far, the economy continues to be resilient. Earnings estimates for 2023 and 2024 have only declined 3% and 2%, respectively this year. We continue to expect the US economy to avoid a recession and experience a soft landing.