Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.
Growth: Too Confident?
Consumer sentiment has improved since the election. Small business optimism has increased. Even the Federal Reserve has become more confident in their growth outlook for 2025. No policies have actually changed, yet. It’s reasonable to expect significant changes, but of what magnitude and what timing? Too high of a degree of confidence can lead to bouts of frustration and drawdowns followed by relief and rallies.
Inflation: Just A Little Off
In September, the Fed was projecting inflation would end the year at 2.3%. They had to update that to 2.4% based on the slightly hotter than expected October and November data. That’s a rounding error. Where there was a bigger change was in the projection for the end of 2025. That projection went from 2.1% in September to 2.5% in December. The Fed isn’t throwing in the towel on its inflation target, but it’s going to be a harder target to hit than they were previously thinking.
Policy: Spoiler Alert
During the November press conference, when asked about how the Fed was incorporating possible policy changes from the Trump administration in its projections, Chair Powell said, “We don’t. We don’t guess, we don’t speculate, and we don’t assume.” During the December press conference he said some members were incorporating those guesses, speculations, and assumptions into their projections. In 2019 the Fed cut rates despite tariffs. In 2025 they may slow or stop rate cuts in the face of tariffs. This about-face in approach may be why the market reacted so negatively to the Fed’s announcements.
Looking ahead: Nothing To Fear But Fear Itself
When optimism is rising and market multiples are expanding, it just takes a little fear to take the veneer off a market rally. This year has had a number of setbacks that in hindsight were just bumps in the road. At the time they felt like existential crises. Perhaps the Fed talking about two cuts in 2025 instead of four is just another one of those bumps.
