Why was stock market going up?
There’s little doubt the Fed’s median estimate in March of three rate cuts in 2024 propelled stocks higher. After the inflation flare-up early this year, many economists figured officials would scale back their forecast to two cuts to ensure consumer price increases are subdued before lowering rates sharply. Fed Chair Jerome Powell suggested the price spike could be a blip and officials will monitor the data closely in the coming months.
But Fed officials also predicted in March the economy will grow 2.1% this year, down from a robust 3.1% in 2023 but well above their 1.4% forecast in December. Consumer spending and job growth have been surprisingly resilient despite high borrowing costs and prices, largely as a result of healthy pay increases. The Fed’s more bullish view also drove up stock values, Zaccarelli said. price index, showed an acceleration in price increases in the first two months of the year, the S&P 500 largely shrugged off the concerns and continued its march higher.
Is the economy going to have a soft landing?
Sure, the Fed’s rate forecasts are having an impact. But Detrick called it “the cherry on top” of an improved economic and earnings picture. There’s a growing belief among forecasters that the Fed will achieve a “soft landing” in which it stamps out high inflation without triggering a recession.
Put another way, if the Fed winds up chopping rates six times instead of three, as some economists expect, that will mean the economy is teetering or in recession “and the stock market is going to go down,” Zaccarelli said.
Overall, though, the prospect of both a solid economy and steady rate cuts is unusual and makes for a favorable environment for investors.