{"id":192012,"date":"2023-06-15T10:30:00","date_gmt":"2023-06-15T14:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=192012"},"modified":"2023-06-15T10:33:07","modified_gmt":"2023-06-15T14:33:07","slug":"taking-stock-of-a-load-of-macro-inputs","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/taking-stock-of-a-load-of-macro-inputs\/","title":{"rendered":"Taking Stock Of A Load Of Macro Inputs"},"content":{"rendered":"\n

There are a lot of macro inputs for the market to digest today, including the output heard yesterday from the FOMC and Fed Chair Powell.<\/p>\n\n\n\n

There was a unanimous vote (a surprise to us) to hold the target range for the fed funds rate steady at 5.00-5.25% and new projections that included an upward revision to the median estimates for the change in 2023 real GDP (to 1.0% from 0.4%), a downward revision to the expected 2023 unemployment rate (to 4.1% from 4.5%), and an upward revision to the expected 2023 core PCE inflation level (to 3.9% from 3.6%). In turn, the dot-plot contained a median estimate for two more rate hikes before the end of the year (versus one more rate hike that the market had been expecting).<\/p>\n\n\n\n

In sum, there were a few surprises from the Fed yesterday, yet the stock market didn’t act as if it was really surprised. The S&P 500, which experienced some normal volatility following the decision, ended the day at roughly the same level it was trading just before the FOMC decision at 2:00 p.m. ET.<\/p>\n\n\n\n

The tolerance for the Fed’s surprises was underpinned by an assumption that the Fed won’t ultimately realize the projection of raising rates at least two more times before the end of the year. That assumption was borne out of an abiding belief that inflation trends will improve more than the Fed expects, thereby allowing the Fed to hold off on additional rate hikes.<\/p>\n\n\n\n

This will be the great divide in coming months that one side is going to have to cross: either the market is right or the Fed is right. If the Fed is right, then the market will find its climb more challenging. If the market is right, then one might reasonably expect to see some shock absorbers kick in on any pullbacks, as participants ride the notion that the rate hikes at least are basically over.<\/p>\n\n\n\n

That doesn’t mean, however, that the Fed is going to pivot quickly to a rate-cut cycle. It is apt to keep rates higher for longer until it is confident inflation will get back to its 2.0% target and stay there on a sustained basis. How the economy handles the higher rates for longer will be key in dictating the market’s path since that will ultimately factor into thoughts about earnings prospects.<\/p>\n\n\n\n

In other central bank news, the People’s Bank of China cut its one-year medium term lending facility rate by 10 basis points to 2.65% amid a slate of May retail sales, industrial production, and fixed asset investment data that was all weaker than expected. The European Central Bank for its part raised its three key policy rates by 25 basis points, as expected.<\/p>\n\n\n\n

Those developments preceded a large batch of economic data out of the U.S. this morning that was mixed:<\/p>\n\n\n\n