Comments based on information available as of 7:30am CT on 3/21/2025
Growth: Double-Dip Vibecession
It’s not unusual to see sentiment move separately from spending. What matters more than how people feel is how they behave. Despite the significant drop in consumer sentiment and confidence, consumers will likely continue to do what they do best: consume. In 2022 there was a “vibecession” where people were feeling glum despite good growth numbers. We may be going through a similar period today.
Inflation: Higher For Shorter
Chair Powell uttered the word “transitory” at the latest press conference. In 2021 he said inflation would be transitory and it was anything but. This time, he may have the right adjective. Back in 2021, the combination of too stimulative fiscal and monetary policy in an environment of constrained supply was a recipe for persistent inflation. Tariffs can cause an immediate change in the price level, which shows up as short-term inflation, but the longer-term effects on inflation don’t have to be anything the Fed needs to react to.
Policy: An Unsteady Pause
The messaging from the Fed was that they think they can stay the course despite all the uncertainty around the outlook. It might not take much for the Fed to suddenly change its plans as the uncertainty begins to resolve. They have penciled in a slight growth slowdown and slight increase in inflation. How the Fed changes course will depend on whether growth slows more than inflation rises.
Looking Ahead: Distrust Your Instincts
Investors can be their own worst enemies. Instead of buying low and selling high, emotional and instinctive reactions tend to mean investors buy closer to the top of markets and sell closer to the bottom instead. Instincts that are useful for survival are not useful for investing. Sticking to a well thought out plan trumps instincts.
