Tighter labor markets are the expectation... and if 4.6% is their long-run estimate for unemployment, some labor softness along the way won’t derail their plan.
To me, it looks like the only thing that can derail their plan is an inflation surprise (big deflation, maybe from a recession). Baring a recession, we’re heading towards 3% short term rates by 2019.
Thoughts….
So the stock market didn’t react much to the Fed events. This isn’t too surprising since the Fed didn’t surprise. I think a lot of bulls are going to stay bullish because today looks a lot like yesterday and the bulls own the trend.
But…. I come back to my valuation concerns. In a 2% growth world with 2% inflation and rates climbing to 3%, why does it make sense to buy US equities at current valuations?
Valuation is not a catalyst but I think it’s the foundation for a risk/reward trade-off. And I don’t like the current situation for equities one bit.
We’ll do a valuation divetomorrow
but for the moment the Fed is telling me that growth is looking meh and rates will climb. AND the only way they don’t hike is if we get a recession. Either of those outcomes are not a good prognosis for equity valuations, if you ask me (big if). See youtomorrow
,-Mike
