Market Update: “The Shock Hasn’t Hit Yet”
The Federal Reserve held interest rates at the 4.25-4.5% mark for the third meeting in a row, much to the Administration’s dismay. FED chair Jerome Powell is taking a wait-and-see approach with the impact on the newly introduced tariffs.
Boosting Markets
The market reacted strongly yesterday, May 8th, to the trade-war controversy, as President Trump announced a trade deal with the UK, boosting US export markets for agricultural products. The United States will scale back the 25% foreign auto tariffs to 10% and eliminate tariffs on steel exports.
Impending Shock?
Though talks have somewhat subsided, Powell underscores that the “shock hasn’t hit yet,” which is the primary reason for holding rates steady. The trade war impact is mainly dictated by how many deals we can reach with other countries, as we did with the UK today. Powell also points to a period of stagflation looming with the tariff craze. Stagflation is when an economy experiences inflation, but also stagnant growth. It is an unusual situation, but Powell cites that waiting until we receive more data on the tariffs’ effects is the best option for monetary policy’s sake.
Holding Steady
The current economy is in good shape, as unemployment levels remain low, wages have not wavered, and job creation is “fine,” according to Powell. Though the economy is resilient, the FED will take action once it sees material evidence of a downturn in the job market.
“We want interest rates to come down because inflation pressures are easing, not because the economy is weakening,” cites Powell. Consequently, interest rate drops will come if the economy weakens significantly in the coming months.
What does this information mean for holdings? The FED is obviously prioritizing stability over stimulus, and being cautious should ease investors’ nerves about an absolute market plummet like we saw last month; of course, this is barring any unpredictable behavior from the Administration. With companies like GOOGL posting strong first quarter earnings amidst this craziness, it signifies that the big 7 are still holding strong through the storm.
Stuart B. Allen guides the overall direction of the firm, is active in trust administration, and helps shape the investment policy for the company. Stuart holds a finance degree from the University of Oregon, a law degree from Texas Wesleyan University, and a Series 7 and 63 license and has been in the investment committee from the founding of Allen Trust Company and Allen Capital Management.
Disclosure: The information provided in this writing is for general informational purposes only and does not constitute financial advice from Allen Trust Company and Allen Capital Management. Readers are encouraged to consult with a qualified financial advisor to assess their individual circumstances and make informed decisions based on their specific situation.