Jerome Powell, Federal Reserve Chairman, stated in March 2022 that their target goals were to lower inflation based on several indicators that, include the Consumer Price Index (CPI) to 2%. The committee projected that they would need to raise the Federal Reserve discount rate from 0.25% – 0.5% to 5.0% to 5.5% to achieve their target inflation goal.
As we have opined in previous Weekly Briefs, there are many solid indications that inflation is near their target rate and potentially the end of the rate hike campaign. Our assessment is based on significant declines in housing, energy, and consumer spending. Last week, the Bureau of Census released its monthly report on Retail Sales. For the past two months and during the holiday season, retail sales declined month over month.
What Does This Mean to Me?
The obvious concern is if consumers significantly slow their spending, the economy is at risk of declining into a recession or, worse – a disinflationary cycle. Investors are keenly aware of this risk and hence the concern about how much more the Fed will raise rates. We maintain that the Federal Reserve rate hike policy is nearing an end and may be the key to the sustainability of the US economy and, eventually, the establishment of a new positive stock market trend.
In other words, a soft landing to the slowing of the economy and the 2022 stock market selloff.
The S&P 500 had maintained a positive trend since October 14, 2022, when it bottomed at its lowest level 2022. As of today, the S&P 500 has crossed above its 20-Day Moving Average (DMA), 50 DMA, and 200 DMA.