From the desk of Willie Delwiche.
The market’s focus is moving on from monthly inflation prints and toward the health & resiliency of the economy in light of the cumulative tightening by the Fed. Our macro health status report remains mixed, but is holding steady for now.
Why It Matters: Stocks celebrated the release of the November CPI report that showed inflation cooling more than expected. Those early gains have proven hard to hold on to. At this point, peak inflation is a rear-view issue and the path of inflation going forward is more important for the market. It is possible that it retreats quickly, but more plausible that after an initial pullback it stabilizes at a relatively high level. The sticky CPI (published by the Atlanta Fed) actually moved to a new high in November. As the market reckons with the path of inflation, the need for additional rate hikes and the impact on the economy of all this, our health status report will provide a timely assessment of the most important question for which the market seeks answers. It’s not whether conditions are good or bad, but whether they are getting better or worse relative to expectations.The more green lights we see, the more likely it is that the Fed has engineered a soft landing, the more red lights that appear, the more likely it is that we will experience a hard landing. Without a clear set of indicators, a soft landing and a hard landing can look awfully similar to each other up until the moment of impact.
Our Deeper Look looks at the components of the health status report - not just for the current message but for additional evidence of improvement or deterioration.
