Santa Claus Is Coming to Town
Jerome Powell is playing Santa this year.
The Federal Reserve chairman has had several days to push financial markets away from the notion that the U.S. central bank will embark upon an interest rate cutting scheme next year. If he wanted to, he could have intervened.
Instead, the Fed chair has been silent. That is an implicit endorsement of the market’s view that we’re headed for five or six cuts next year.
The market’s crystal ball tends to fog up with speculative fervor. While market sentiments can sway, the Fed’s decisions are typically rooted in a more pragmatic analysis of economic fundamentals.
Looking at the economic landscape, while there might be areas of concern, there are few signs of the economy slumping. Consumer confidence is rising, unemployment is falling, and stocks are soaring.
He Knows When You Are Awake
You might think that this would be the moment that the Fed would take away the punch bowl. Instead, the Fed is pouring a bit of rate-cut liquor into the mix.
Here’s the view of the Conference Board (emphasis in the original):
“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, Chief Economist at The Conference Board. “While December’s renewed optimism was seen across all ages and household income levels, the gains were largest among householders aged 35-54 and households with income levels of $125,000 and above. December’s write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months abated in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024.”
Peterson added: “Assessments of the present situation rose in December, as seen by the more positive views of business conditions and the employment situation. By contrast, when asked to assess their current family financial conditions (a measure not included in calculating the Present Situation Index), the proportion reporting “good” ticked down while those saying “bad” rose slightly. This suggests consumers’ view of their current finances may paint a more tempered picture than the perception that overall conditions are better than a month ago.”
“Consumer expectations for the next six months also increased in December, reflecting improved confidence about future business conditions, job availability, and incomes. Expectations that interest rates will rise in the year ahead plummeted to the lowest levels since January 2021, and consumers’ outlook for stock prices rose to levels of optimism last seen in mid-2021. Meanwhile, average 12-month inflation expectations continued to recede, and now stands at 5.6 percent. Consumers’ views of their expected family financial situation, six months hence (not included in calculating the Expectations Index) also improved in December. Likewise, on a month-to-month basis, buying plans for autos, homes, and big-ticket appliances rose moderately across the board, ending the year on a slightly more positive note.”
In other words, everything is looking up in December. Deck the halls and all that.