Medicare Agent News: The Fed Expects a Recession

Wednesday, April 12, 2023

The Fed Expects a Recession

By Alex Eule | Wednesday, April 12

Tale of Two Tapes. The day began with some promise for stocks after the latest consumer price index report showed that year-over-year inflation fell to 5% in March, below the 5.2% estimate and February's 6% rate. The food component of the index was flat on the month, while "food at home" actually fell 0.3%, its first decline since September 2020.

The major markets all traded higher for the first hour or so of trading. But it wasn't all good news on the inflation front. So-called core inflation, which excludes the more volatile categories of food and energy, actually accelerated a bit, with year-over-year core growth of 5.6% versus 5.5% a month ago.

Inflation might be cooling according to some metrics, but it isn't going away. That's the key takeaway from this morning's CPI report.

"Total inflation is slowing as last year’s surges in gasoline and food prices start to fall out of the year-over-year comparison," Bill Adams, chief economist for Comerica Bank, wrote today, "but core inflation is still too high."

The report didn't do much to change the needle on rate expectations. Investors still widely expect one more quarter-point interest rate hike from the Federal Reserve at its meeting next month. But they increasingly see that as the last of the rate increases.

With the Fed less worried about inflation, it's becoming more focused on economic growth, and that's not an altogether great picture for the market. Stocks turned negative shortly after the Fed released minutes today from its March meeting. The notes showed that Fed officials are somewhat worried about the months to come.

"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years," the minutes said.

Consumer discretionary stocks seemed to take the news hardest, with the sector down 1.6% on the day, with much of the losses coming after the minutes were released at 2 p.m.

Stocks in general had a rough afternoon, with the major indexes all falling into the close. The S&P 500 fell 0.4% on the day, while the Nasdaq Composite was off 0.9%.