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Fed is walking 'a very dangerous line' with inflation

Federal Reserve officials have begun tempering expectations for interest rate cuts, with some even stating that there is currently no reason to adjust rates. As markets had anticipated three rate cuts in the latter half of the year, Verdence Capital Advisors Chief Investment Officer Megan Horneman joins the Morning Brief to discuss why markets (^DJI, ^IXIC, ^GSPC) need to recalibrate their expectations. Horneman states that the market seems to be adopting "a more realistic" stance regarding what the Fed can accomplish in 2024. She notes that a rate cut in March or June was "way too optimistic," saying she had always believed any cuts would be "a second-half-of-the-year story." With "new interest rate expectation[s]" emerging, Horneman says that markets are now beginning to "reset" to align with these revised expectations. Horneman expresses concerns, particularly within the labor market and the potential impacts of inflation, emphasizing that persistent wage growth continues to pose "a problem for the Fed." Horneman attributes part of the economy's resilience to "[Fed Chair] Jerome Powell adopting such a dovish stance at the end of last year." She believes this fueled a resurgence in economic activity, cautioning that this could lead to a resurgence in inflation, making it "a very dangerous line they're walking." For more expert insight and the latest market action, click here to watch this full episode of Morning Brief. Editor's note: This article was written by Angel Smith


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