FOMC Subtle Hints and Market Reactions | Episode 120 | 04-10-2024

Discover the reasons behind Wall Street's latest turmoil as Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, deciphers the fresh economic data that's making waves among investors. We dissect the March FOMC minutes and their subtle hints at future interest rate cuts, inflation worries, and the lurking economic deceleration in 2024. With financial markets quaking from unexpected inflation figures and a disappointing Treasury note auction, Megan navigates the intricate financial landscape and the Fed's wary approach to monetary policy.

In today’s episode, Megan sheds light on the startling inflation report from this morning and discusses how the Fed's indecision is fueling market doubts. We also preview the forthcoming producer price index report and its potential to provide deeper insight into inflation's trajectory. For those perplexed by the day's downturn or anticipating future economic climates, our conversation is filled with nuanced understanding to help demystify the complexities of our economy. Reach out and join the conversation as we steer through these choppy economic seas together.

Unfortunately, today it is Wednesday, april 10th, and we now have a second piece of our economic data report that is fueling this sell-off in Wall Street. What we got this afternoon is the FOMC minutes from their March meeting. This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. Let's dig into what happened in these minutes and why the market's selling off on this.

The Federal Reserve officials have been very vocal over recent weeks and being what we consider dovish, stating that interest rate cuts are expected this year. The market's like that. The market's been pricing in three, four at the beginning of the year, six rate cuts for this year. But now we're seeing, after this morning's hotter than inflation report and some of the comments that came out of that meeting, this is a lot more unclear than I think investors that investors see, and I think that's why you're seeing equity markets sell off today when we look at the actual minutes from the meeting. So this is everything that's talked about in the meeting, not just the brief statement that comes out after the meeting. There was a lot of comments about officials being uneasy about what's going on inflation. In fact, they mentioned that there would be some unevenness as inflation returns to their target. They see upside risk to inflation because of financial conditions, their uncertainty about this persistence of high inflation. And then, from the growth perspective, they discussed how they saw economic growth slowing in 2024 compared to 2023. Now these are things that the market is now very confused on when we can get Fed rate cuts. Right now, the expectation is for one, maybe two, possibly before the end of the year, but pushed out into the second half of the year. That inflation data definitely did scare investors this morning, and then this lack of clarity from the Fed is not helping that pessimism in the market.

One other data note about today was we did get a reopening of the 10-year Treasury note auction and we've talked in the past about how auctions have been kind of dicey as far as demand for these auctions, and this was a very poor auction. We saw the yield come out at the higher end of the range. The bid-to-cover ratio was extraordinarily low. It was the lowest we've seen since December of 2022. These are all things that is fueling this risk-off sentiment in the markets we've seen since December of 2022. These are all things as is fueling this risk off sentiment in the markets today. We'll be back tomorrow where we'll get our other another inflation reading, we'll get the producer price index so we'll have some more information for about inflation. Then If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com. Thank you.