Fed Dot Plot Update – December 2023

The market has responded to the Fed’s latest dot plot release with widespread optimism. Is it warranted? Let’s look back at the key takeaways from AAMA’s Q3 market commentary.

We’ve been consistent in our analysis of inflation – saying that we thought it’d be persistent and that any rate cuts would be delayed well into 2024. We’ve seen multiple cycles of optimism for rate cuts over the past two years, but each of these has been dashed by persistent inflation reports and hawkish Fed statements.

Jerome Powell was notably less hawkish in his recent press conference, but a few things stand out. First, while improving, PCE inflation is still elevated (current 6 month moving average is higher than it was in August). Second, Powell reinforced the Fed’s resolve to get inflation down to their 2 percent target. And lastly, the Fed responds to the data – and they would like to see continued lowering inflation trends before committing to rate cuts.

From our perspective, the dot plot is encouraging… but at this point its still speculation. The data will ultimately drive Fed policy. We expect inflation, while moderating, will not be easily brought down to the Fed’s target.

The bottom line?

As a fundamentally-rooted strategist, we remain focused on the factors we can reliably measure. While we don’t expect a severe recession in 2024, widespread market overvaluation and shaky corporate earnings tell us that defensive sectors should be represented in equity portfolios, with an emphasis on earnings and balance sheet quality. In the fixed income space, we remain positioned in short-term and high-quality debt instruments.

If you’d like to speak about the market in greater detail or inquire about our fundamental investment process, don’t hesitate to schedule some time on our National Sales Manager, Aaron Ploscowe’s, calendar. He’d be happy to answer your questions. 

If you’d like to download a copy of our full, Q3 market commentary, click here

The information and opinions in this report have been prepared by the investment staff of Advanced Asset Management Advisors (AAMA). This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but AAMA makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute AAMA’s judgment and are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as a recommendation to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations.

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