Consensus Wall Street forecasts expect the Federal Reserve to engineer both a "soft landing" for the U.S. economy and embark on a "major" policy easing cycle, according to analysts Stifel.
In this scenario, the Fed would manage to corral post-pandemic inflation without causing a downturn in the wider economy, and then begin a period of borrowing costs cuts aimed at spurring growth.
Earlier this week, the Fed slashed interest rates by 25 basis points and indicated that more cuts may be ahead in the coming months, with officials trying to balance twin risks of a softening labor market and sticky inflation.
However, in a note to clients on Thursday, the Stifel analysts warned that, unlike consensus expectations, they anticipate that U.S. real core gross domestic product -- a tracker of the goods and services purchased by households and businesses that aims to provide a better snapshot of the underlying economy by excluding volatile components like trade and government spending -- will "slow sharply."
They added that it may also be "too late" for the Fed to use a series of rate cuts to bolster the economy, citing the possibility of both labor demand and wages becoming weaker.
Inflation, which along with the employment picture is a key focus for the Fed, could prove to be long-lasting and not "transitory" as many investors are betting, the Stifel analysts suggested. They argued that price gains will not decelerate to the low-2% range through next year "without a recession" in the wider economy.
Latest projections from the Fed showed that officials do not anticipate that inflation will slow to the central bank’s 2% target until 2028.
Although headwinds could be facing the wider economy, stocks have been partially bolstered by soaring enthusiasm around the applications of artificial intelligence. Coupled with hopes for a Fed rate cut, the AI boom has powered the main U.S. equity averages to recent all-time peaks.
However, the Stifel analysts said that while mega-cap tech firms have notched "huge economic profits," these stocks are still exposed to a possible slowdown in activity and have "expensive" valuations.
Source :
https://www.investing.com/news/stock-market-news/stifel-outlines-where-it-differs-from-the-bullish-consensus-on-stocks-4244709
